Europe’s largest insurers are set to maintain broadly stable financial leverage

Europe’s largest insurers are set to maintain broadly stable financial leverage over the next 18 months, according to credit rating agency Moody’s.

“Financial leverage – debt as a percentage of capital, defined as shareholders’ equity plus financial debt – will remain in a 23 percent to 25 percent range,” said Helena Kingsley-Tomkins, AVP-analyst at Moody’s. “Some insurers may take advantage of current ultra-low interest rates to increase borrowing, but with others focused on reducing debt, we foresee no material change in total leverage.”

Moody’s Investors Service said in its EMEA Insurance Monitor that some insurers may also be reluctant to increase borrowing because their current low leverage levels primarily reflect the positive impact on shareholders’ equity of falling interest rates under the International Financial Reporting Standards (IFRS) accounting regime, rather than a real economic improvement in their leverage position.

However, following the decline in interest rates during 2019 and the adverse impact this had on the sector’s Solvency II ratios, some insurers may turn to debt markets to restore their capitalisation.

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