Reinsurance News

Low interest rates hit French life sector solvency: Moody’s

16th October 2019 - Author: Matt Sheehan

French life re/insurers’ Solvency II ratios declined during the first nine month of 2019 as falling interest rates signalled pressure on future profits, according to Moody’s Investors Service.

loss chartInterest rates have fallen significantly in 2019, causing some large French life insurers’ Solvency II ratios declined between 15 and 23 percentage points in the first six months of 2019.

If insurers’ rate of investment return were to fall below the average policyholder guaranteed rate, the industry would make losses on traditional guaranteed products, analysts noted.

However, they added that the risk is currently limited, as the average guaranteed rate on French life policies remains low at just 0.5%.

That said, insurers will still be vulnerable to a further decease in interest rates, and future profitability remains at risk if rates do not recover.


Low interest rates for example could threaten the ability of some insurers to maintain the level of fees they can take from policyholders’ savings, which is a key source of revenues for French life insurers.

“Solvency ratios are sensitive to falling rates as French life insurers are highly exposed to savings policies with guaranteed rates of return, and because their liabilities tend to be longer-dated than their assets,” explained Benjamin Serra, Senior Vice President at Moody’s.

“Weaker solvency ratios mainly reflect pressure on future profits and increased vulnerability to a further decrease in rates, but the risk of accounting capital losses remains limited.”

Moody’s expects insurers to take measures to improve or limit the decline of their solvency ratios, but the recent developments will likely attract regulatory attention.

This is expected to accelerate efforts to reduce the industry’s reliance on guaranteed products, but it will take time to change the product mix profile of insurers’ liabilities.

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