With government and private employers across Europe backing away from providing for workers in their retirement, there’s an opportunity for life insurers to fill the pensions gap, says Moody’s Investors Service.
In a new report, the rating agency says that pension products sold by life insurers benefit from certain tax advantages in many European jurisdictions. If these tax advantages continue, it expects life insurers to be well placed to take advantage of these shifts in the pension market and the need for workers to provide for their own retirements, relative to other types of financial institutions. And, it suggests that these long-term growth opportunities will be credit positive for life insurers.
Moody’s cautions that the demand for life insurance and pensions across Europe is likely to remain under pressure in the near-term, given the macro economic challenges, which has many households’ discretionary spending under pressure.
It also suggests that life insurers face two main challenges in obtaining this business in the longer term: encouraging consumers to act; and, defending against competition from asset managers and banks, particularly in markets where tax incentives for pension products have been removed or reduced.
Additionally, it cautions that insurers providing annuities are exposed to longevity risk in the event that policyholders live longer than expected when pricing annuities at retirement.