Fitch Ratings has revealed that its outlook for the European insurance sector remains ‘neutral’ for 2025, which according to the agency, reflects resilient operational and business conditions, and disciplined pricing, amid falling bond yields, easing inflation and moderating non-life premium rates.
Analysts noted that the outlooks for the underlying sectors are also ‘neutral’, with two exceptions: The Italian life sector outlook is ‘improving’ as Fitch expects a recovery in net flows due to lower lapse rates and higher new business volumes, and the German non-life sector outlook is ‘improving’ due to still-strong pricing momentum, which is expected to boost profitability.
At the same time, Fitch forecasts capitalisation across the European insurance industry to remain resilient and very strong as insurers reduced their sensitivity to (lower) interest rates.
“We also expect earnings and profitability to benefit from broadly stable economic and operating conditions in most markets,” the firm noted.
Adding: “Around 85% of Fitch-rated European insurance groups have Stable Outlooks. This reflects our expectations for financial metrics to remain broadly stable and within Fitch’s rating sensitivities for most European insurers. Higher earnings and stronger capital positions resulted in more upgrades than downgrades in 2024, with IFRS 17 accounting providing more insight on insurers’ capital strength.”
Moving forward, analysts believe that the majority of European non-life insurers will be able to raise tariffs in 2025 to offset claims inflation and high reinsurance costs, but not, however, to the extent of growing underwriting margins.
In fact, analysts explained that they expect non-life insurers to focus on improving the quality of their books and on cutting expenses, while earnings will continue to benefit from past tariff increases.
An important factor to address though is that Fitch sees earnings volatility from higher retention of climate risk as a “downside risk” for European property and casualty (P&C) insurers.
“The ability to price, size and reinsure exposure on climate-related risks can be an underwriting earnings differentiator between primary insurers. In Spain and France, state-owned entities largely absorb natural catastrophe losses, partly shielding primary insurers from this risk. Climate change will create higher demand for property covers, fuelling growth in the segment,” analysts said.
Additionally, the agency forecasts solid growth in new business sales in 2025, as life insurance products remain relatively attractive due to still elevated yields or, as in the case of Italy, because of falling government bond yields which in turn enhances the value of traditional life insurance products.
As well as this, structural drivers, such as increased demand for defined contribution pensions in the UK and the Netherlands, and retirement products in France and Italy, are expected to boost growth in 2025 and beyond.
Lastly, Fitch anticipates that conduct risk will remain on regulators’ agendas in 2025, particularly in the UK, where investigations in motor-related lines and funded reinsurance are currently underway.
It’s worth noting that in the EU, the enforcement of the Insurance Recovery and Resolution Directive in 2026 will create a uniform cross-border regulation for large insurers under stress.
“While increased regulatory oversight should strengthen the sector’s resilience, we expect cost of compliance to continue to be elevated. Many European insurers have transitioned to IFRS 17, which should bring stability through increased transparency and comparability, supporting investor confidence,” Fitch concludes.
