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Moody’s turns stable on global life sector

16th June 2021 - Author: Matt Sheehan

Moody’s Investors Service has changed its outlook for the global life insurance sector to stable from negative, based on expectations for near-term growth prospects and a more favourable operating environment.

The outlook revision follows a change to stable outlook for US life insurers and Japanese life insurers.

Despite sustained low interest rates, Moody’s expects the life insurance sector to remain stable over the next 18 months, aided by improving individual health as mass vaccinations reduce the spread of COVID-19.

“Strong solvency capital ratios globally underpin our view of the outlook,” Moody’s Vice President Manoj Jethani says. “Although pandemic mortality continues to weaken profitability, the overall impact on the credit profile of life insurers has been less severe than originally expected due to differences in demographics of the general versus the insured population, as well the benefits of diversification from longevity-type insurance products.”

Of the remaining countries that still have a negative outlook, in some, such as the UK, there have been signs of stability, both in the operating environment and at the individual company level, as shown by solid profitability and solvency ratios.

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However, in other countries with negative outlooks, such as Germany and the Netherlands, Moody’s warned that life insurers are still faced with structural pressure on profitability and capital adequacy linked to still very low yields.

Among the factors underpinning the stable outlook, Moody’s cited forecast GDP growth of 6.1% in G20 countries this year and 4.4% in 2022, following a 3.2% contraction last year. At the same time, a growing economy, supported by the lifting of pandemic restrictions on most economic activity, is expected to boost demand for life insurance products.

Solid capital adequacy has helped insurers navigate the pandemic, as insurers bolstered already-strong regulatory capital ratios with funds from debt insuances in 2020.

Other considerations include the key role of private capital in the life industry’s transition out of the pandemic, particularly in the US, as it seeks to manage a greater share of insurance assets, often through M&A and other partnerships or investments.

Furthermore, Moody’s noted that the pandemic helped to accelerate the digitalization of life insurance sales processes, which should help reduce costs for companies as well as policyholders, and in the longer term could make insurance more appealing to new, digitally oriented, younger generations of buyers.

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