The investment income of global non-life insurance companies is expected to drop by around US$5 billion to US$15 billion, according to Moody’s Investors Service.
In a report released today titled: Global Insurance: Despite Rise, Still-Low Interest Rates a Threat To Profitability
, Moody’s said that the prevailing low interest rates will continue to put pressure on insurers’ profitability and, in some cases, even solvency, especially in the three most exposed markets: Taiwan, Germany, and Norway. This is despite interest rates rising slightly in the third quarter of 2016.
Benjamin Serra, vice president and senior credit officer at Moody’s, added in a statement accompanying the report that investment income of life insurers is expected to decline by a larger amount, estimated at around US$20 billion to US$40 billion.
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“The impact on life insurers’ profits will be more limited though, as this decline will be largely shared with policyholders,” said Serra. Non-life insurers, on the other hand, cannot share the decline with their policyholders.
As such, Moody’s forecasts a reduction in the global non-life industry’s net result by 5%-10%.
The agency also said that a global prolonged low interest rate scenario is unlikely, but it still remains a key risk for life insurers, especially in more exposed markets.
However, a sudden increase in interest rates may hurt life insurers, as well.
“For example, it could trigger a sudden increase in surrenders, forcing insurers to realise investment losses,” Serra said.
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