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European insurers adjust to changing operating landscape: Moody’s

12th June 2019 - Author: Luke Gallin

Macro trends and technological advances continue to alter the operating landscape for European insurance companies, driving the transformation of business models, increased digitalisation and market consolidation, highlights financial services ratings agency, Moody’s.

Moody'sFollowing its annual European insurance summit, held in London towards the end of May, Moody’s has underlined a number of trends impacting the sector.

According to Moody’s, speakers concluded that slowing growth, the prolonged low interest rate environment and tech-driven change is forcing companies across Europe to become more efficient, which has ultimately supported consolidation, especially in the closed life sector.

This growing need for greater efficiency has also resulted in more widespread adoption of technology across various parts of the value chain, as companies look to better meet client demand for simplicity and convenience.

“Insurers are increasingly responding to these pressures by selling closed life insurance books, often to private equity-funded consolidators who seek to unlock economies of scale by merging closed books and managing them on a single IT platform,” explains Moody’s.

The potential impact of Brexit was also discussed at the Moody’s 2019 European insurance summit, with warnings that the life sector is exposed to a no deal Brexit scenario, which remains a very real possibility.

Panellists argued that a no deal Brexit would weaken the UK economy, ultimately weighing on demand for life insurance solutions and possibly resulting in a fall in yields.

“Brexit is another source of risk for the financial stability of the sector. Insurers face direct risks due to their exposure to assets whose value may be negatively affected, and there are also second round effects that would affect the industry through market channels,” says Moody’s.

Panellists also discussed environmental, social and governance (ESG) risks facing insurance companies, noting that environmental risks impact both investment and underwriting activities.

At the same time, the rise of InsurTechs and cyber insurance present both opportunities and challenges for the industry.

“In the cyber insurance market, one risk is a relative lack of loss data and other information needed for pricing and model building,” says Moody’s.

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