The Global life insurance Market outlook overall is stable as rising interest rates boost investment incomes for insurers and improve the profitability of guaranteed products.
According to Moody’s, life insurers’ strong capital positions will help them weather a difficult operating environment characterised by persistent inflation, tighter monetary policy, market volatility, and a rising risk of recession.
A key drivers of stable outlook in most insurance markets, rising interest rates causing a decline a investment portfolio yields, strong capital adequacy, and continuing mergers and acquisitions prompted by accounting changes.
Moody’s had stable outlooks for the US, Germany, the UK, France, Japan, South Korea, the Netherlands, the Nordics, Switzerland, and Belgium. However, it viewed Italy, China, and Taiwan as being negative.
Sector outlooks are distinct from rating outlooks, which, in addition to sector dynamics, also reflect issuers’ specific characteristics and actions. A sector outlook does not represent a sum of upgrades, downgrades or ratings under review, or an average of rating outlooks.
With more than half their invested assets held in bonds, life insurers benefit when interest rates rise.
This will happen both immediately, as insurers invest new premiums in higher-yielding securities, and incrementally, as existing portfolio investments mature and are reinvested at higher, prevailing interest rates.
A number of factors that could change its outlook to negative, includes prolonged recession or the prospect of stagflation in multiple regions, a decline in interest rates, asset quality deterioration from ratings downgrades and defaults, weaking capital and liquidity, and a failure in margins improving.