The European insurance sector’s 2020 outlook has been classed as negative by Moody’s Investors Service, reflecting growing profitability and solvency pressures amid low interest rates, macroeconomic uncertainty, and rising ESG risk.
The firm said interest rates will stay low for longer, weighing on the solvency and profits of both life and P&C insurers, and incentivising them to take more asset risk.
“As recession risks are rising amid a pronounced global economic slowdown, market volatility could make it harder for insurers to change their product mix towards low-risk unit-linked products, and heighten the risk of asset losses,” it said.
In addition, a growing volume of consumer-friendly legislation will limit insurers’ margins and P&C prices are rising, but only enough to offset claims inflation, limiting any loss ratio improvement.
“The 2020 Solvency II review may result in a moderate increase in capital requirements, adding pressure to solvency ratios already weakened by low rates,” the firm stated.