Although the industry sectors share challenges, including the continuing weak global recovery, Moody's says life insurers will be the most impacted by a slow growth environment, given that their products are often discretionary purchases. Low interest rates will also weigh on life insurers' margins.

Moody's Investors Service released two new global outlooks "Global Life Insurance Outlook - 2013," and "Global P&C Insurance Outlook – 2013,” in which they describe how ongoing low interest rates and volatile equity markets will also accelerate life insurers' retreat from guaranteed investment products, reducing sales in the short-term. But it was added that this retreat is expected to result in improvements to the overall risk profile of the life industry in the years to come.

P&C insurers are better positioned to withstand a slow growth environment, as many P&C products remain mandatory for buyers, and certain P&C risks are uncorrelated with economic conditions. In addition, in many markets and business lines P&C insurers are responding to these pressures by increasing premium rates.

Losses from Superstorm Sandy will dominate fourth quarter earnings for U.S. P&C insurers. Although, the report adds, most residential-focused companies will still show a profit for the period, while those covering commercial or industrial risks could lose up to two quarters worth of earnings. The rating agency expects firms to react by augmenting catastrophe-modeling efforts with additional scenario analysis and stress testing.

Both sectors are reportedly closely following Solvency modernization initiatives that will have mixed implications, as regimes move toward more principles-based approaches with incentives for improved risk management. While Moody’s explains that broader risk management is positive for both life and P&C insurers, future Solvency frameworks remain under construction and may pose further challenges for the sectors.

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