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Global life sector stable despite low interest rates: Moody’s

12th December 2019 - Author: Matt Sheehan

Moody’s Investors Service has assigned a stable outlook to the global life insurance sector in 2020, despite concerns about the adverse impact of low interest rates on profitability and solvency.

StabilityAnalysts believe the industry is supported by solid regulatory capital and relatively conservative investment portfolios, and has made efforts to adapt portfolios to the low interest rate environment.

“These factors offset the adverse impact of low interest rates on profitability and economic solvency,” explained Dominic Simpson, VP-Senior Credit Officer at Moody’s.

He continued: “Low interest rates are the key risk facing the sector after falling to fresh lows and forcing life insurers to reinvest maturing assets at lower yields, weighing on their investment income, and increasing their appetite for higher-yielding, and higher risk assets.”

Moody’s believes that overall GDP and unemployment levels are still supportive of industry growth, but noted that the global economy is slowing and not conducive to rising interest rates.

RMS

That said, the rating agency expects the impact of low interest rates to be limited by insurers’ ongoing shift towards less sensitive, fee-based, capital-light products such as unit-linked and protection policies.

The sector will also be supported by regulatory capitalisation, which has benefited from robust equity markets and insurers’ profitability, and is expected to remain solid, with solvency ratios comfortable above regulatory minimums, according to Moody’s.

Additionally, while insurtechs have the potential to cause disruption in certain insurance lines and functions, analysts have observed a growing trend of collaboration that may help modernise the life sector.

Geographically, Moody’s continues to view the German, Norwegian and Taiwanese life insurance industries as most exposed to a prolonged period of low interest rates.

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