Insurance profits in the eurozone grew by 20% in 2013, but low economic growth, low inflation and historically low interest rates will limit the scope for further gains, according to Ernst & Young.
The sluggish eurozone recovery will restrict insurers to a 5% profit in 2014, the advisory firm said in its latest quarterly financial services forecast.
Despite the increase in estimated profits seen over the past 12 months across the eurozone, E&Y noted that the rise came from a very low base and profits still remained 50% below the 2007 industry peak.
'The outlook for insurance remains comparatively stable - markets are calm and the economy is slowly gaining momentum but there is still no sign of relief from low interest rates, and high levels of unemployment in some markets are challenging,' said Andreas Freiling, EMEIA insurance leader at the firm.
And continued high levels of unemployment will curtail the pace of insurers' recovery, the firm added. It warned that unemployment is expected to reach a high of 19 million across the eurozone in 2014, a level which could make policyholders very price sensitive and limit the prospects of insurers, especially in Italy, the Netherlands and Spain.
It said higher household income should support life premiums, which are forecast to reach $625bn in 2014 - the first time they have been above $620bn since 2008.
The firm noted that the eurozone this year will experience annual gross domestic product growth for the first time since 2011, but at just 0.9% the rise will not be strong enough to support a level of uplift in financial services that will drive economic recovery.
E&Y highlighted that bad loans, lending and insurance premiums were having a noticeable effect on the ability of financial services industries to support economic recovery. According to the report, mortgage lending will fall by 3% and consumer credit will drop by 2.4%.