Gradually increasing interest rates and stability in the global economy had led Moody's Investors Service to issue a stable 2014 outlook for the global life and P&C insurance industries.
The gradual increase in interest rates is leading to a more benign environment for life insurers, the company said. While investment yields likely will continue to decline in 2014, the rate of decline is slowing. As a result, Moody’s said the "hunt for yield" likely would be less intense, as would investment in riskier asset classes. “Nonetheless, in Europe the trend towards investments in illiquid assets is expected to continue,” Moody’s said.
The beginnings of an economic recovery in leading economies also is reducing pressure on life insurance sales, Moody’s said, as improving economic growth and unemployment will free up consumers’ purchasing power for discretionary items, including life insurance.
P&C insurers also benefit from a stabilizing global economy, which is fuelling broad-based premium growth at above loss-cost trends, Moody’s said.
P&C premiums are expected to grow at low-to-mid-single digits in North America and Europe, Moody’s said, and at high-single or double digits in Asia and Latin America.
Moody’s said P&C insurance penetration rates are stable at around 4.5 percent of gross domestic product in North America, at 3 percent in Europe, and gradually are rising in Asia and Latin America at 1.5-to-2 percent.
“The stable industry outlook for P&C insurers in 2014 is also underpinned by the mandatory nature of major product categories such as auto, home and commercial property insurance, which lead to relatively consistent performance through economic cycles,” Moody’s said.
For P&C insurers, natural and man-made catastrophes continue to pose challenges, as does setting pricing and reserves for U.S. casualty business lines, where insured losses take a long time to materialize.
Stagnant or spiking interest rates could put pressure on the stable outlook for life insurers, Moody’s said. Evolving regulatory frameworks also create uncertainties, but Moody’s said their impact will be limited in 2014.
