STOCKHOLM (S&P Global Ratings) April 27, 2020--S&P Global Ratings has published today its latest Insurance Industry And Country Risk Assessments (IICRAs) for the life and the property and casualty sectors (P/C) of Norway, Sweden, Finland, and Denmark:

• Norway: Property/Casualty.
• Norway: Life.
• Sweden Property/Casualty.
• Sweden Life.
• Finland: Property/Casualty.
• Finland: Life.
• Danish Property/Casualty.
• Danish Life.
• All reports are on RatingsDirect.

We believe that Norway, Sweden, Finland, and Denmark enjoy strong credit quality and wealthy economies. The Nordic insurance sectors will continue to benefit from high operational barriers to entry and a supportive institutional framework. Although we expect the economic and credit distresses stemming from the COVID-19 pandemic will adversely affect these sectors in 2020, we think the impact will not be lasting.

Norway

We assess the industry and country risk of the life insurance sector in Norway (AAA/Stable/A-1+) as intermediate, and for the P/C sector, low. Both assessments take into account our view of very low country risk in Norway.

We base our assessment of very low country risk on Norway's prosperous economy, strong fiscal and external positions, and prudent policymaking, which create a stable operating environment for insurers. Furthermore, the country's high per capita income levels, strong social and unemployment protection, and government stimulus support continued growth for the sector. We also note that large external and fiscal net asset positions from accumulated petroleum revenue has enabled Norway to withstand oil price shocks, an escalation of global trade tensions, or a severe housing market correction.

In our view, the life insurance sector is exposed to moderately high industry risk. This sector has remained profitable in both adverse and supportive economic situations. The low interest rate environment has weakened the sector's profitability over the past few years, but it remains sufficiently high to generate enough capital to support moderate balance-sheet expansion. The average (2015-2019) return on equity (ROE) and return on investment (ROI) were about 8.9% and 2.8%, respectively. However, in our view, the product risk for Norwegian life insurers has remained elevated because guaranteed products continue to dominate insurers' portfolios, exposing them to interest rate and mortality risk. Positively, insurers' adjustments through cost optimization, and a gradual increase of fee business from the sale of capital-light products, help counter the impact of low interest rates.

We believe the Norwegian P/C sector is exposed to low industry risk. We base our view on the sector's disciplined underwriting performance and profitability, as demonstrated by its consistently low combined (claims and cost) ratio and high ROE; high barriers to entry; and moderate exposure to natural catastrophes.

Sweden

We assess the industry and country risk of the P/C insurance sector in Sweden (AAA/Stable/A-1+, unsolicited) as low, and for the life insurance sector as intermediate. We base our assessments on the sectors' very low country risk.

For the Swedish P/C sector, we believe there is low industry risk. This sector has delivered high ROE over the past several years, supported by strong technical results. We expect the sector to remain highly profitable in the coming two to three years, although it is subject to potential volatility because of its relatively high level of equity investments.

We believe Swedish life insurers face intermediate industry risk. In our view, the main risks for this sector are the asset-liability mismatch stemming from the guaranteed portfolio in life insurers' back books, which constituted 45% in third-quarter 2019, and relatively heavy exposure to high-risk assets such as equities. However, we believe that the industry monitors these risks closely, and has taken action to reduce them by shifting new business to unit-linked products from traditional guaranteed products. Nonetheless, we assume it will take time until the guaranteed share of overall liabilities decline materially. In the meantime, these risks are partially offset by Swedish life insurers demonstrating strong profitability with and average ROE of about 10% for the past five years, teamed with strong operational barriers and supportive institutional framework.

Finland

We assess industry risk for the P/C insurance sector in Finland (AA+/Stable/A-1+) as low, and for the life insurance sector as moderately high.

In our opinion, we view the sector as profitable with high operational barriers to entry, reflected by the four largest players controlling most of the market. Although the sector has low exposure to catastrophe risk, the high proportion of long-tailed business presents some volatility.

Finland has a track record of stable, transparent, and effective governance and political institutions that, from our perspective, in addition to a favorable payment culture and rule of law, provides a healthy operating environment for Finnish P/C insurers.

We anticipate that interest rate and market volatility will constrain Finnish life insurers' profitability. In addition, we believe the sector is also subject to risks stemming from the guaranteed back-book. In our opinion, these factors are partially offset by the industry's risk high operational barriers to entry and established institutional framework.

Denmark

We assess the industry and country risk for the P/C insurance sector in Denmark (AAA/Stable/A-+1) as low; for the life insurance sector, intermediate. Our assessments reflect our view of benefits from Denmark's wealthy economy and strong creditworthiness.

We note that, for the Danish P/C insurance sector, guarantees in the insurers' back books and a low-yield environment increase market risk and weigh on insurers' earnings prospects. If the sector's profitability deteriorated significantly over a prolonged period, or if we concluded that product-related risks were higher than we currently believe, we could reassess industry risk to intermediate.

We expect that Danish life insurers will continue to achieve stable profitability in the long term, despite pressure on earnings in 2020 due to turbulent equity markets. We believe that the amount of long-term traditional savings products with high guarantees in the back book represents the key challenge for the sector, particularly because interest rates are still low. While the sector's profitability compares unfavorably with other Nordic life insurance sectors, life insurers in Denmark have lower guarantees and have developed advanced hedging strategies to address the risks associated with these guarantees.