Alarm over the European Insurance

On November 18, 2019, Moody’s revised the financial soundness of European insurance from stable down to negative. By doing so, the rating agency, whose task is to assess corporate solvency, is trying to draw the attention of savers and investors to the frailness of the Union’s insurance sector.

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the magazine [1]

The alarm was triggered essentially against life insurance, not spared by this appraisal even though it is less exposed to financial hazards due to the interest rates serviced to insurers. In fact, this decrease in interest is no novelty as it has been lingering since the beginning of the 1990s. After more than two decades of windfall, insurers’ financial cushion has finally melted away, with life insurers struggling to honor their obligations toward contract owners. Threatened in their survival, insurance companies, under the watchful eye of regulators, were compelled to review their solvency ratios. The poor growth perspectives of the European economy, still under the threat of recession, are compounding the misery of insurance companies.

The situation of the European market remains, nonetheless, far and away from the one witnessed by Japan in the 1990s where after ten years of low rates, eight life insurance companies went bankrupt, leaving behind approximately 32 billion USD in losses.

The solution to the crisis requires an overhaul of the life insurance industry paradigm whereby savers will be called upon to take more risks with a saving system shifting more toward stock investment than bonds whose interest rates are set at zero.

Life insurance, the success story of the last thirty years, with high profitability and guaranteed funds, is now running out of steam. In the non-life insurance business, the improved operating results and the decreasing costs, constitute for the time being the only response to the decreasing financial products.

Alarm over the European Insurance

Atlas Magazine N°166, November 2019 [1]