S&P Global Rating assesses the insurance industry for the life insurance sector and for the property/casualty (P/C) insurance sector in Poland as moderate. The assessment reflects the view of the life sector’s industry risk as moderate and the P/C industry risk as intermediate.
Life Insurance
S&P assess the industry risk for the Polish life insurance sector as moderate. They base the assessment on a view of five industry-related factors. The sector’s profitability in 2016 declined due to lower investment returns and the implementation of tax on assets. According to the authors, the potential for product risks to trigger volatility in returns is in intermediate level, but on an increasing trend in recent years due to legal and reputational risk stemming from unit-linked liquidation fees. Despite a relatively concentrated market, they consider barriers to entry to be only moderate, since a material amount of products are distributed through independent distribution networks and banking channels. S&P considers that the market has been in decline in the last couple of years on account of regulatory changes, the low interest rate environment, reduced consumer confidence, and more attractive offerings from competitive savings products. They assess the institutional framework as moderately strong, which supports the view of moderate risk for the market.
S&P’s assessment of the sector’s profitability is a neutral factor for the industry risk assessment. This is similar to the profitability assessment in most of the other European life insurance markets. “We think the trend of lower net income for the life insurance sector will continue in 2017, mainly on account of the low interest rate environment. Additionally, declining premium volume is reducing the capacity to earn margin. Furthermore, a declining market could spur higher competition and further reduce margins. Moreover, in our view, the implementation of the EU’s Insurance Distribution Directive, which generally increases the standards for consumer protection in retail distribution and must be transposed into domestic law by 2018, could in the mid-term increase insurance companies’ costs, and thereby reduce the margins on insurance products. We continue to expect a considerable difference between PZU Zycie’s and the rest of the market’s performance to remain.” – we read in the report.
