Rating agency Moody’s outlook for the European insurance sector is stable in light of improving economic growth, financial market stability and the willingness of industry participants to adapt their products.
In a recent report discussing the European insurance sector in 2018, Moody’s highlights s number of headwinds that will continue to impact life and property and casualty (P&C) insurers across Europe, but notes that favourable trends has resulted in a stable outlook for the sector, despite the challenges.
Benjamin Serra, Vice President and Senior Credit Officer, Moody’s, said; “Favorable trends, such as economic growth and a low risk of financial markets disruption will be supportive for the P&C and life insurance businesses.
“However, insurers will continue to face headwinds from still low interest rates which will pull down their investment income.”
Despite rising, interest rates are still low and remain a headwind to profitability for insurers and reinsurers in Europe. But in order to offset some of the negativity and adapt to the low interest rate landscape, Moody’s highlights the willingness of life players to adapt their products.
Perhaps most notably, explains Moody’s, concerns the increasing of the proportion of unit-linked business in their new business mix, something the rating agency expects to continue over the next 12 to 18 months.
For P&C insurers, Moody’s expects to see underwriting discipline, notable by increasing prices, something that could be hindered by intense competition across most markets.
The rise of InsurTech and FinTech is also expected to play a role in the coming months, with insurers embracing new technology in order to reduce costs.
“Other levers that insurers will activate to offset the pressure from low interest rates include in-force management and changes to their asset mix,” said Moody’s.
Despite the stable outlook, Moody’s underlines Brexit and tensions over North Korea as possible causes of downside risks for European insurers, while profits could be further strained if interest rates fail to increase as expected.
