European insurance outlook stable despite low interest rates – Moody’s

Interests rates are rising slowly and will continue to pose problems for profitability, but Moody’s says the outlook for the European insurance industry remains stable.

“Favourable trends, such as economic growth and a low risk of financial markets disruption will be supportive for the P&C and life insurance businesses,” said Moody’s vice president and senior credit officer, Benjamin Serra.

Moody’s expects to see gradual normalisation of interest rates in Europe. However, Serra warned: “insurers will continue to face headwinds from still low interest rates which will pull down their investment income.”

Underwriting discipline needed to overcome tough times

Moody’s European insurance report suggests that Property & Casualty (P&C) insurers will remain “disciplined” in their underwriting. Pricing is expected to rise. Tough competition, however, will make it difficult to balance out claims inflation.

Strong combined ratios are likely to deteriorate, according to Moody’s, while reserve releases are a “wild card”.

Cost-cutting may help insurers claw back some ground. Savings are likely to be made through using new technology, in-force management and asset mix changes.

The challenges 2018 will pose

The geo-political situation remains volatile: the Brexit outcome is still uncertain, while tensions over North Korea could have a dampening effect on economic growth. If they create volatility in financial markets then this could pose problems for insurers.

There is likely to be a further decline in insurer profits if interest rates do not rise as forecast. If they rise too quickly then this could leave insurers in lapsation.

Technological change is a further threat, as it could disrupt business models.

Climate change risk is another threat to the European market, as it could lead to an increase in claims.