UK/Italian life insurance outlook revised to negative

Written by Adam Cadle

31/03/2020

The UK life and Italian life insurance sectors have had their outlooks changed to negative from stable, Moody’s has announced.

Moody’s said the change for the UK reflected “increased solvency pressure from the coronavirus pandemic, compounded by a likely reduction in earnings because of lower sales and asset impairments”.

“The pandemic will also to some degree curtail growth opportunities in the bulk annuity and pensions market which have until now absorbed margin pressure due to intense competition, regulatory headwinds, and low interest rates,” it added.

For the Italian life insurance market, Moody’s said the coronavirus outbreak “will pressure Italian life insurers’ capitalisation and top line growth”.

“The coronavirus outbreak has triggered significant movements in interest rates, credit spreads, and equity valuations. Credit spreads on Italian sovereign bonds rose to approximately 330 basis points (bps) on 18 March before retreating to below 220 bps a few days later. We expect such volatility across asset classes to continue as long as current uncertainty regarding the severity and duration of the coronavirus crisis continues.

“We also expect pressure on the credit quality of Italian small- and medium-sized enterprises (SMEs), corporates and banks. In combination, these factors are likely to negatively affect Italian life insurers’ investment income, as well as their Solvency II ratios. Italian insurers’ solvency remains sensitive to negative market movements, despite a recent legislative change (see report), which reduces their sensitivity to credit spread movements.”

Related Articles