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The impact of the low interest rate environment has yet to test the robustness of both life and non-life re/insurers as the effect slowly trickles down on companies’ balance sheets, increasingly impacting results, according to Moody’s.
The re/insurance sector is, however, trying various techniques to mitigate this affect. Many companies are taking more risk in their investments in an attempt to improve their investment income, according to the rating agency. In addition, property/casualty insurers are trying to engage in lines of business with better rates and reduce costs to offset lower investment income.
At the same time, life insurers are lowering the guaranteed rates of the products they sell and are shifting to unit-linked products, a mix of insurance and investment, which shifts more risk to the holder. But the situation for the sector is likely to get worse before it improves.
“Insurance companies continue to invest at yields that are lower than the yield they have on their existing portfolio, so the investment yield will continue to decline, at least in 2017 and probably in the future years as well,” says Benjamin Serra, vice president – senior credit officer, at a Moody’s April 26 press event in London.