European life insurers shift to capital-light products

Written by Adam Cadle

05/03/2020

European life insurers are gradually shifting away from traditional guarantees towards more capital-light products, transferring part of the investment risk to policyholders, Fitch Ratings latest report has said.

“The is the result of the protracted low interest rate environment, posing major challenges to insurance companies operating in the euro area,” the report said.

“Extremely low rates across the eurozone are driving life insurers towards hybrid products, a combination of traditional savings and unit-linked features. Hybrids are more appealing to insurers than traditional guaranteed products as they support insurers’ capital requirements by transferring some market risk to the policyholders.

“Insurers have either stopped offering guarantees on new contracts or reduced the level of guarantees, but the shift towards capital-light products is slow to implement and legacy guarantees still make up most of the insurers’ technical liabilities.”

In Fitch’s analysis, setting up sales restrictions on investment guarantees and focusing on products with lower capital requirements is credit positive.

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