Moody’s Investors Service has said that over the next 18 months, the financial leverage at the largest insurance companies in Europe is expected to be broadly stable.
According to financial services ratings agency, Moody’s, some of Europe’s insurers might look to take advantage of the low interest rate environment to increase borrowing, while others have a focus on reducing debt.
The expectation of stable financial leverage in 2020 for Europe’s largest insurers comes from the ratings agency’s December issue of its EMEA Insurance Monitor.
Commenting on the findings, Helena Kingsley-Tomkins, AVP-Analyst at Moody’s, said: “Financial leverage – debt as a percentage of capital, defined as shareholders’ equity plus financial debt – will remain in a 23% to 25% range.
“Some insurers may take advantage of current ultra-low interest rates to increase borrowing, but with others focused on reducing debt, we foresee no material change in total leverage.”
As explained by Moody’s, for some, the lower for longer interest rate environment might well be beneficial as some insurers might well increase their borrowing and turn to debt markets in an effort to restore their capitalisation.
However, other insurers might be reluctant to increase borrowing levels owing to the fact their current low leverage levels “primarily reflect the positive impact on shareholders’ equity of falling interest rates under the IFRS accounting regime, rather than a real economic improvement in their leverage position,” notes Moody’s.
