Interest rates biggest risk for life insurers in 2020, says Moody's

Low interest rates will be the biggest threat to the profitability and solvency of life insurers, according to a recent report from Moody's Investors Service.

However, this is offset by solid regulatory capital and relatively conservative investment portfolios of insurers, said Moody’s which assigned a stable outlook for the global life insurance sector.

”Low interest rates are the major risk facing the sector after falling to fresh lows and forcing life insurers to reinvest maturing assets at lower yields, weighing on their investment income as well as increasing their appetite for higher-yielding and higher risk assets,” said Moody’s VP-senior credit officer Dominic Simpson.

From a country perspective, Moody’s view Taiwanese life insurance industries as the most exposed to a prolonged period of low interest rates in Asia due to its investment returns being already below or close to the guaranteed rate and a high duration gap.

On a global level, Norway and Germany were the other two very-high countries along with Taiwan. It is more likely that countries will move into higher-risk categories over time as the recent decline in rates places additional pressure on insurers' profitability and reduces their ability to lower credited rates.

While GDP and unemployment levels are still supportive of the life insurance industry growth, the global economy is slowing and not conducive to rising interest rates. This has led to an ongoing shift among insurers towards less interest rate-sensitive, fee-based, capital-light products such as unit-linked and protection policies which provide some defence from low rates.

For instance, Chinese insurers have responded to falling yields and a regulatory clampdown on short-term savings products by giving greater weight to protection products, in particular health insurance.

Source: Asia Insurance Review