Tough time ahead for small life companies
Ratings agency Standards and Poors has cast doubt on the survival ability of some of the smaller life companies in New Zealand.
Tuesday, February 15th 2000, 12:00AM
The agency says the sector in Australia and New Zealand has a stable outlook, however there are a number of changes taking place which could potentially be fatal for small players.
"In a nut shell, you have (a) relatively small, highly competitive market with too many players," S&P managing director, insurance, Ian Thompson says.
"The industry is under pressure in terms of the commoditisation of products, which is driving profit margins. There's been consolidation and further consolidation will occur."
Thompson says the New Zealand market has been hit harder than the Australian market by some of the changes taking place because it's a smaller market.
Also, the Australian market has the cushion of compulsory superannuation.
Thompson says bigger players have an advantage because of the structure of the industry.
"On the sale side it's a local market and on the manufacturing side it's a global market," he says. "(That) means the big players have an advantage.
Thompson says the critical factors necessary for success include; distribution and aligning products to market, brand name and image, economies of scale and competitive investment returns and capitalisation.
Companies which have not established a strong and resilient market position and a clear competitive advantage, may not survive the next 10 years, he says.
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