Commercial Risk Europe: Moody’s sets negative outlook for European insurers in 2020

20 November 2019

Ratings agency Moody’s has changed the outlook for the European insurance sector to negative from stable going into 2020, as pressure on profits and solvency in an environment of “ultra low” interest rates and rising environmental, social and governance risks mounts.

Moody’s said low interest rates will be lower for longer, which in turn will weigh further on solvency and profits of both P&C and life insurers. Investments returns made up more than 50% of P&C profits in 2018. Moody’s expects a decrease in investment returns of between 15 and 40 basis points, equivalent to a drop in 3% to 8% of profits in 2020.

Moody’s added the 2020 Solvency II review “may result in a moderate increase in capital requirements” after a decline in solvency ratios in Europe during 2019, largely due to falling interest rates. The European Commission will conclude its Solvency II review by January 2021.

For P&C insurers, rising premium rates in most European countries are only offsetting claims inflation, Moody’s said, and will have a limited impact on loss ratios. It added that competition is keeping a lid on larger rises that could do more to counteract falling investment income.

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