Moody’s Ratings, the international credit ratings, research and risk analysis company, has reaffirmed its stable outlook for Europe’s property and casualty (P&C) and life insurance sectors, while highlighting growing pressure from competition, slower economic growth and geopolitical uncertainty.
Moody’s said profitability among P&C insurers has recovered to levels recorded before the COVID-19 pandemic, largely due to premium increases introduced across European markets over the past year.
However, the agency believes the scope for further earnings improvement is becoming more limited as slower economic conditions increase competitive pressure and reduce the benefit of falling reinsurance costs.
According to Moody’s, life insurers are expected to continue benefiting from strong demand for savings and retirement products. The company noted that lower short-term interest rates and higher long-term rates have improved the appeal of long-term insurance products when compared with short-term banking options.
This trend is expected to support premium growth and reduce policy cancellations, particularly in markets such as France where competition between banks and insurers remains strong. Despite this, Moody’s warned that profitability in the life insurance sector is likely to come under pressure.
In the UK, the agency said competition for bulk purchase annuity business and suitable long-term assets is affecting margins. Across continental Europe, insurers are also facing continued regulatory scrutiny over whether products offer customers appropriate value for money, although related legislative proposals are advancing slowly.
Moody’s stated that its central forecast assumes the conflict in the Middle East will have only a contained impact on European insurers. Under this scenario, the company expects the main effect to be a rise in marine and specialty insurance claims, which should remain manageable for most firms.
However, the agency cautioned that a prolonged escalation could lead to higher energy prices, weaker economic activity, increased claims inflation and reduced profitability. Moody’s Ratings also said further market instability, including falling equity prices and widening credit spreads, could weaken insurers’ solvency positions.
The agency reported that insurers in major European markets have largely offset rising inflation and weather-related claims costs through premium increases. Combined ratios across several countries have now returned to, or improved beyond, pre-pandemic levels. Moody’s Ratings added that some insurers are still benefiting from pricing measures introduced last year, although future gains are expected to slow as premium growth aligns more closely with claims inflation in motor and property insurance markets.
In the UK, Moody’s observed that insurance prices have already started to decline, which the company said could contribute to weaker underwriting performance over the coming months. The agency also expects investment returns for P&C insurers to stabilise after several years of improvement.
Moody’s said recent reinsurance renewals have been moderately positive for primary insurers. The company noted that some larger and more diversified insurers secured broader reinsurance protection, improving coverage against frequent loss events and, in certain cases, strengthening protection against major catastrophes compared with earlier years. However, Moody’s Ratings stressed that these improvements are not evenly distributed across the sector.
The agency expects growth opportunities in life insurance to remain strongest in areas such as the UK and the Netherlands, where pension buyout activity continues to expand. Moody’s also noted that insurers have recently increased sales of unit-linked products after a period in which guaranteed products dominated the market.
On investments, Moody’s said insurers continue to maintain relatively conservative portfolios overall, although exposure to illiquid assets, particularly private credit and securitised products, is expected to rise gradually as firms seek additional diversification and returns.
Moody’s reported that solvency ratios across the European insurance industry improved during 2025, supported by higher interest rates and stronger profitability. Nevertheless, the company warned that insurers remain exposed to risks from falling equity markets and rising government bond spreads. Moody’s Ratings identified France’s 2027 presidential election as a potential source of uncertainty because of the possible impact on sovereign bond markets.
The agency also highlighted continued pressure from shareholder distributions. According to Moody’s, dividends and share buybacks represented close to 70% of profits among large primary insurers in 2025.
The company expects shareholder payouts to remain high, supported by recent changes to Solvency II capital rules, which Moody’s Ratings believes should strengthen solvency ratios for most insurers from 2027 onwards, provided interest rates remain relatively stable.
