New York:
With receding Covid-19 Pandemic globally,the international rating agency Moody's has revised the outlook for the global life insurance sector to stable from negative, reflecting the expectation for near-term growth prospects and a more favorable operating environment,
Moody's Investors Service says in a new report. The outlook revision follows a change to stable outlook for US life insurers and Japanese life insurers.
"Strong solvency capital ratios globally underpin our view of the outlook," Moody's Vice President Manoj Jethani says.
"Although pandemic mortality continues to weaken profitability, the overall impact on the credit profile of life insurers has been less severe than originally expected due to differences in demographics of the general versus the insured population, as well the benefits of diversification from longevity-type insurance products, " he adds.
Industry growth will be supported by a rebound in the global economy as the progress in the roll-out of mass vaccinations has meant the United States and Europe are on the verge of leaving the pandemic behind them. A delayed pace of vaccination roll-outs in some Asia Pacific countries will lengthen recovery, and new waves of illnesses, dangers from virus mutations, and inadequate vaccination distribution are hurdles to a successful recovery for many emerging market economies, however.
Of the remaining countries that 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.
However, in other countries with negative outlooks, such as Germany and the Netherlands, Moody’s warned that life insurers are still faced with structural pressure on profitability and capital adequacy linked to still very low yields.
Among the factors underpinning the stable outlook, Moody’s cited forecast GDP growth of 6.1% in G20 countries this year and 4.4% in 2022, following a 3.2% contraction last year.
At the same time, a growing economy, supported by the lifting of pandemic restrictions on most economic activity, is expected to boost demand for life insurance products.
Furthermore, Moody’s noted that the pandemic helped to accelerate the digitalization of life insurance sales processes, which should help reduce costs for companies as well as policyholders, and in the longer term could make insurance more appealing to new, digitally oriented, younger generations of buyers.
Even as interest rates remain at ultra-low levels, the life insurance sector is amid a business transformation. A wave of M&A and divestitures, particularly in the US and as a result of the challenging operating environment, the industry is shifting to higher-growth, capital-light businesses that require greater scale. Private capital is also playing a key role in this sector transition, as it aims to manage a greater proportion of insurance assets through M&A, as well as other partnerships and investments.