Continental European life insurers’ solvency ratios to remain very strong

Written by Adam Cadle

13/05/2024

Continental European life insurers’ Solvency II ratios will “stay very strong” into 2024, despite the likely rate cuts by the ECB, Fitch Ratings has said.

Fitch believes that life insurers will be resilient to lower policy rates owing to their strong capital buffers and reduced sensitivity to interest rate shifts, supported by a smaller asset-liability duration gap.

EEA life insurers’ SII ratios remained high at 243% in Q3 2023, after peaking at around 250% in Q1 2022, driven by favourable higher discount rates on technical provisions under SII and a negative duration gap.

The positive effect of higher rates on life insurers’ SII ratios varied across countries, reflecting differences in product types and asset-liability management strategies. German insurers notably benefited from the high-rate environment because of the significant duration gap (i.e. assets much shorter than liabilities), while Italian and French Insurers, despite a better matching, faced higher capital requirements related to higher lapse risk as their saving products can be redeemed in full on demand. In Spain and the Netherlands, asset and liability durations are well-matched, limiting the impact of interest rate cuts.

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