Moody’s: Stable outlooks for Life and P&C insurance industries in 2014

09.12.2013 – MoodysThe outlooks for the global life and property/casualty (P&C) insurance industries are stable for 2014 on the back of gradually increasing interest rates and relative stability in the global economy, says Moody’s Investors Service in two new publications.

Gradually increasing global interest rates create a more benign environment for life insurers. Although insurers’ investment yields will likely decline further in 2014, the downward trend shows signs of slowing. Rising interest rates are likely to ease the intensity of the “hunt for yield” and corresponding investment by life insurers in riskier asset classes. Nonetheless, in Europe the trend towards investments in illiquid assets is expected to continue.

Moreover, growing evidence of a nascent economic recovery taking hold in leading economies reduces pressure on life insurance sales. Improvements in both economic growth and unemployment will ease constraints on households’ savings and free up purchasing power for discretionary items such as life insurance.

The stabilising global economy also benefits P&C insurers, fuelling broad-based premium growth that is generally at or above loss cost trends. Moody’s expects P&C premiums to grow at low-to-mid-single digits in North America and Europe, and at high single digits or double digits in the emerging markets of Asia and Latin America. P&C insurance penetration rates are stable in North America (at around 4.5 Prozent of GDP) and Europe (around 3 Percent) and rising gradually in Asia and Latin America (1.5 Percent – 2 Percent).

The stable industry outlook for P&C insurers in 2014 is also underpinned by the mandatory nature of major product categories such as auto, home and commercial property insurance, which lead to relatively consistent performance through economic cycles.

Key challenges for P&C insurers remain natural and man-made catastrophes, as well as setting pricing and reserves for business lines such as US casualty where insured losses take a long time to materialize (‘long-taillines’). For life insurers, stagnant or spiking interest rates could put pressure on the stable industry outlook. Evolving regulatory frameworks across the world also create uncertainties, but their impact will be limited in 2014. (vwh)

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