Life insurance sector's outlook revised to stable from negative

Moody's Investors Service says that it has changed the outlook for the global life insurance sector to stable from negative for 2021.

The change in outlook mirrors a recent shift in outlook to stable from negative for life insurers in the US and Japan, two of the world’s largest life insurance markets, says Moody's. It also reflects the sector's improved growth prospects and reduced likelihood of tail events in the near term, as a result of a more favourable global operating environment, aided by improving individual health as mass vaccinations reduce the virus's spread.

Despite sustained low interest rates, Moody's expects the life insurance sector to remain stable over the next 18 months. Of the remaining countries where we still have a negative outlook, in some, such as the UK, there have been signs of stability, both in the operating environment and at the individual company level, as shown by solid profitability and solvency ratios. In other countries with negative outlooks, such as Germany and the Netherlands, life insurers are faced with structural pressure on profitability and capital adequacy linked to still very low yields.

The following factors underscore the change in outlook to stable from negative:

1.A rebound in the global economy will support industry growth

Moody's forecasts GDP in G-20 economies to grow by 6.1% in 2021 and by 4.4% in 2022, following a 3.2% contraction last year. A growing economy, supported by the lifting of pandemic restrictions on most economic activity, will boost demand for life insurance products.

2.Solid capital adequacy has helped insurers navigate the pandemic

Globally, insurance companies entered 2020 with strong regulatory capital ratios, which were further bolstered by funds from debt issuances. Solid solvency ratios and strong liquidity helped insurers navigate the pandemic.

3.M&A leads business transformation, prepares insurers for post-COVID

Private capital is playing a key role in this industry transition, particularly in the US, as it seeks to manage a greater share of insurance assets, often through M&A and other partnerships or investments.

4.Pandemic accelerates digitalisation

The pandemic-driven year of contactless, virtual business interaction accelerated the digitalisation of life insurance sales processes that was already underway pre-pandemic. Increased digitalisation will reduce costs for companies as well as policyholders, and in the longer term will make insurance more appealing to new, digitally oriented, younger generations of buyers.

Source: Asia insurance review