The outlook for the global life insurance sector is stable, reflecting a favourable economic cycle and strong capital levels, says Moody's Investors Service in a report published yesterday.
Global life insurers have adapted to persistent low interest rates better than expected by exchanging sales of interest-sensitive products for fee-based retirement, savings and health products, says the report titled "Life Insurance -- Global 2019 Outlook: Stable -- reflecting favourable economic cycle and strong capital".
"Rising interest rates in some regions, such as the US and Canada, have been positive credit drivers," said Manoj Jethani, a Moody's vice president. "However, there is marginal re-risking of investment portfolios, with a gradual move towards lower quality and less liquid assets, such as private credit and alternatives."
Overall, the balance sheets of global life insurance companies are healthy and capital levels are expected to remain robust in 2019, although some challenges lie ahead. Specifically, RBC ratios are expected to decline in the US due to the impact of tax reform, although this should not affect the credit profile or ratings in the region. UK and Japanese capitalisation is expected to remain solid, although any financial market volatility in the UK as a result of Brexit remains an area of focus.
In China, the capitalisation of life insurers remain solid, while the refinement of C-ROSS will be beneficial for the insurance industry.
Moody's outlooks consider the forward-looking assessment of fundamental credit conditions that will affect the creditworthiness of the sector for the next 12-18 months.
The report highlights the following key themes for the global life sector:
- Continued favourable global economic growth should fuel more demand for life insurance products over the next 12-18 months
- Interest rates will likely rise gradually, but will still weigh on life insurers’ profits; However, most are adapting through changes to product mix, but some regions, e.g. in Germany, will face solvency pressures
- Emphasis on risk management and rising equity markets have buoyed legacy blocks of business. Expect to see even more M&A activity in 2019.
- Asset risk is rising, with increasing exposure to late-cycle corporate debt risk and illiquid investments, such as alternatives and private credit
- Regulatory trends are mixed and create uncertainty, but are still manageable
- Technology and innovation is enabling insurers to reduce costs and improve efficiency while deepening customer relationships.