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  • January 2013
01

Low growth and interest rates weigh heavy on life sector, says Moody's

Open-access content Monday 28th January 2013 — updated 5.13pm, Wednesday 29th April 2020

Low interest rates and slow economic growth will make 2013 a difficult year for the global life insurance sector, Moody’s said today.

In its Global life insurance outlook - 2013, the ratings agency gave the sector a negative outlook. Interest rates are expected to remain at historically low levels 'for the near term', weighing on life insurers' profitability as the returns on investments fall towards guaranteed minimums, while earnings charges are also expected to increase after this year.

Sales of life products are also falling in most 'mature' markets as low economic growth and reduced purchasing power means consumers are less likely to make discretionary purchases.

Moody's expects sales to be hit further by life insurers' retreat from guaranteed investment products - a trend which will accelerate as a result of low interest rates and volatile equity markets.

But the agency added that this would have long-term benefits for the industry. 'Insurers also increasingly promote protection and other insurance risk products, as well as wealth management products,' Moody's explained.

'The focus on reducing and managing the risk associated with guarantees on new business will improve the overall risk profile of the industry, but it will take years before it can offset the risks on the legacy business.'

Moody's made a more positive assessment in its Global property and casualty insurance outlook - 2013. General insurers are better positioned to withstand a slow growth environment because many of the products they sell are mandatory for buyers, it explained as it gave the sector a stable outlook.

While low interest rates have reduced investment yields and weak growth has reduced sales and premium volumes, insurers are - where possible - addressing this by increasing premiums and shifting their business mix towards more favourable markets.

The agency also stressed how important it was for global general insurers to invest in technology, either to enhance their operational efficiency, better inform under-writing decisions or manage enterprise risks.

'The most developed insurance markets in terms of technology include the US, Europe and Japan. In addition, emerging markets such as Brazil, Mexico, China and India are poised for rapid advances,' it said. 'In most market sectors, effective investment in technology will be required merely to keep pace with competitors, and those who invest unwisely risk falling behind.'

This article appeared in our January 2013 issue of The Actuary.
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