Low global interest rates will continue to pressure insurers’ profitability, and possibly their solvency, according to a report published on Thursday by Moody’s Investors Service.
The most vulnerable markets to prolonged low rates would include Germany, Norway and Taiwan, the report says.
“We expect the investment income of the global life insurance industry to decline by US$20 billion-US$40 billion in 2017,” says Benjamin Serra, vice president and senior credit officer at Moody’s, in a statement. “The impact on life insurers’ profits will be more limited though, as this decline will be largely shared with policyholders.”
A sudden increase in interest rates could also hurt life insurers, the report says. “For example, it could trigger a sudden increase in surrenders, forcing insurers to realize investment losses,” it says.
While Moody’s doesn’t expect a sudden rate rise, it says that the French and Italian markets would be most at risk in this scenario. It considers the United Kingtom to be among the least exposed to this risk.
Additionally, non-life insurers should also see their investment income decline in 2017, the Moody’s report says. These firms could see a US$5 billion-US$15 billion drop, which could reduce global industry profits by 5%-10%.