The outlook for the global life insurance sector overall is stable as rising interest rates boost investment incomes for insurers and improve the profitability of guaranteed products, says Moody’s Investment Service in a new report.
The firm said that life insurers’ strong capital positions will help them weather a difficult operating environment characterised by persistent inflation, tighter monetary policy, market volatility, and a rising risk of recession.
Manoj Jethani, a vice president and analyst at Moody’s, said: “With more than half their invested assets held in bonds, life insurers benefit when interest rates rise. This will happen both immediately, as insurers invest new premiums in higher-yielding securities, and incrementally, as existing portfolio investments mature and are reinvested at higher, prevailing interest rates.”
In its report, the firm listed a number of key drivers that it said underpinned its stable outlook over the next year to year-and-a-half. These were, the authors of the report wrote, a stable outlook in most insurance markets, rising interest rates causing a decline a investment portfolio yields, strong capital adequacy, and continuing mergers and acquisitions prompted by accounting changes.
Moody’s wrote: “The stable sector outlook reflects our view of credit fundamentals in the global life insurance sector over the next 12 months. Sector outlooks are distinct from rating outlooks, which, in addition to sector dynamics, also reflect issuers’ specific characteristics and actions. A sector outlook does not represent a sum of upgrades, downgrades or ratings under review, or an average of rating outlooks.”
The firm also outlined a number of factors that could change its outlook to negative, including prolonged recession or the prospect of stagflation in multiple regions, a decline in interest rates, asset quality deterioration from ratings downgrades and defaults, weaking capital and liquidity, and a failure in margins improving.
Broken down country by country, Moody’s said that it had stable outlooks for the US, Germany, the UK, France, Japan, South Korea, the Netherlands, the Nordics, Switzerland, and Belgium. However, it viewed Italy, China, and Taiwan as being negative.
