EMEA insurers in midst of a ‘perfect storm’

Europe, the Middle East and Africa (EMEA) insurers are at risk from rising capital market volatility, recessionary risks, and heightened inflation, analysts at  S&P Global Ratings have warned.

In its latest report, ‘EMEA Insurance Outlook 2023: In The Midst Of The Perfect Storm’, the agency stated that while rising interest rates should support investment income, it won’t be enough to boost insurers’ profitability.

“We expect operating performance to remain solid, and inflation and recessionary risks not to fundamentally question business positions in 2023,” said S&P Global Ratings credit analyst Volker Kudszus.

Earnings year to date have displayed mark-to-market investment revaluations disproportionally impacted by reported IFRS 4 shareholder equity and investment impairments.

“While we expect investment risks to stem mainly from life insurers' illiquid assets and derivatives, their investment margin and embedded value value-in-force benefits from higher long-term interest rates,” S&P said.

In most EMEA markets, non-life premium rate increases are attempting to match rises in inflation rates.

According to the agency, reserve additions in long-tail lines, like casualty, will continue in 2023 and “may become sizable”.

“We keep a negative view of the reinsurance subsector, as premium rate increases might match inflation but be insufficient to strengthen profitability,” Kudszus said.

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