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22 February 2017
The global life insurance industry will remain profitable due to changes in product mix and higher fees, according to a Moody’s report.
“Reduced emphasis on spread-based and guaranteed products will partly offset declining investment margins,” the ratings agency says.
“Still-robust equity markets will also support income from fee-based products [next year].”
Moody’s has given most countries a stable rating, although the UK, Netherlands, Germany, Argentina and Taiwan have negative ratings due to guaranteed products’ exposure to low interest rates.
The report says countries where the investment return is already close to the guaranteed return pose a high risk to insurers’ profitability.
Low interest rates could pose a threat to countries such as China and Australia if they persist for the next five years. But in Asia the increasing mix of higher-margin, protection-type products will drive profits, while European insurers move to unit-linked products and a focus on health and protection to improve the bottom line.
The Asian market will also benefit from low penetration rates in certain countries.
China is one of the largest life insurance markets, but Moody’s says the penetration rate is less than 2%. This compares with more than 8% in Japan and the UK.
“We expect Chinese annualised premium growth of 15-20% during the next 12-18 months,’ the report says. “Recent sharp stock market corrections, which raise risk awareness and aversion, and other policy initiatives will also contribute to life insurance growth in China.”
Moody’s predicts the spate of mergers and acquisitions will continue next year, driven by regulatory change such as Solvency II in Europe and low interest rates. Chinese and Japanese companies are looking to acquire other insurers to drive growth.
Many deals will be funded through debt and the use of “excess” cash, which is a concern, Moody’s says.
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