Global life insurance outlook is stable as insurers adapt to low interest rates, says Moody’s

The outlook for the global life insurance sector is stable, reflecting insurers’ solid regulatory capital and relatively conservative investment portfolios, and their efforts to adapt their products to a low interest rate environment, Moody’s Investors Service said in a report.

“These factors offset the adverse impact of low interest rates on profitability and economic solvency,” said Dominic Simpson, VP-Senior Credit Officer at Moody’s. “Low interest rates are the key risk facing the sector after falling to fresh lows and forcing life insurers to reinvest maturing assets at lower yields, weighing on their investment income, and increasing their appetite for higher-yielding, and higher risk assets.”

GDP and unemployment levels are still supportive of industry growth, but the global economy is slowing and not conducive to rising interest rates. Still, insurers’ ongoing shift towards less interest rate sensitive, fee-based, capital-light products such as unit-linked and protection policies provides some defence from low rates.

Regulatory capitalisation has benefited from robust equity markets and insurers’ profitability, and will remain solid, with solvency ratios comfortably above regulatory minimums. InsurTechs can disrupt certain insurance lines and functions, but a growing trend of collaboration will help modernise the life insurance sector and insulate it to some degree from disruption.

From a country perspective, Moody’s continues to view the German, Norwegian and Taiwanese life insurance industries as most exposed to a prolonged period of low interest rates.