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Research Announcement:

Moody's - Negative 2020 outlook for European insurance sector reflects rising pressures on profitability and solvency

18 November 2019

Paris, November 18, 2019 --

  • Ultra-low interest rates will weigh on European insurers' solvency and profits
  • Macroeconomic uncertainty will hinder sales of unit-linked products and challenge planned shift in business models, and will heighten the risk of asset losses

The 2020 outlook for the European insurance sector is negative, reflecting growing profitability and solvency pressures at a time of ultra-low interest rates, macroeconomic uncertainty, and rising environmental, social and governance (ESG) risk, Moody's Investors Service said in a report today.

"Interest rates will stay lower for longer, weighing on the solvency and profits of both life and P&C insurers over the coming year and incentivizing them to take more asset risk," said Benjamin Serra, a Moody's Senior Vice President and the report's co-author.

Low interest rates have weakened insurers' Solvency II ratios in 2019, with many experiencing declines of 10 to 30 percentage points, reducing their ability to absorb further shocks in 2020.

Moody's expects a decrease in investment yields of 15-40 basis points (bps) for property and casualty (P&C) insurers, leading to a 3% to 8% decline in profits in 2020. Life insurers' investment returns will fall by 10-30bps annually for several years, but the profitability impact will be more muted as they pass on most of the decline to policyholders through reductions in credited rates.

As recession risks are increasing, volatile financial markets would also make it harder for insurers to increase sales of low-risk unit-linked products and to shift their business mix. Macroeconomic uncertainty also heightens the risk of asset quality deterioration and asset losses.

In addition, a growing volume of consumer-friendly legislation will further limit insurers' margins, while the 2020 Solvency II review may result in a moderate increase in capital requirements, adding pressure to solvency ratios already weakened by low rates.

Moody's has also changed the outlooks for the French insurance and the Dutch insurance sectors to negative, reflecting pressures from low interest rates on life and P&C players in these countries, as well as idiosyncratic risks in these markets. The outlook for the German life insurance sector remains negative.

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Benjamin Serra
Senior Vice President
Financial Institutions Group
Moody's France SAS
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Antonello Aquino
Associate Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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