Several European insurance sector outlooks could move to ‘deteriorating’, Fitch warns

Written by Adam Cadle

05/09/2022

Several European insurance sector outlooks could move to ‘deteriorating’ if high inflation persists and interest rate rises become more significant, Fitch Ratings has said.

Fitch analysed the potential impact of an economic scenario with mid- to high-single-digit inflation throughout 2023 and 10-year interest rates increasing by a combined 300bp in 2022 and 2023. It said non-life insurance sectors would typically be worst affected, particularly those with a high proportion of long-tail business where higher-than-anticipated claims inflation could lead to reserve deficiencies. Fitch emphasised that the European non-life sectors most under pressure would be in Italy, the UK and France.

Life sectors with large books of traditional life policies backed by assets of shorter duration than liabilities would be net beneficiaries from rising interest rates, Fitch added. “The French and German life sectors are the most notable examples, and we would expect the positive effects on capital and medium-term earnings to offset the negative short-term effects of increased investment volatility, higher lapse rates and lower new business volumes. However, financial market volatility and lower asset values would be detrimental to margins in life sectors with a high proportion of unit-linked business.”

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