30 November 2020Insurance

Outlook for emerging markets insurers stable; negative for banks - Moody’s

Ratings agency Moody's 2021 outlook for emerging markets insurers is stable but its outlook for banks and financial institutions is negative. This is due to the uncertainty in asset risk and challenging operating conditions amid the COVID-19 pandemic.

Moody's report finds that moderate and uneven economic recoveries amid the pandemic as well as political and trade uncertainties pose risks for financial institutions in emerging markets throughout Asia, Latin America, Europe, the Middle East and Africa in 2021.

"The uncertain trajectory of asset quality is among the biggest risks for banks as operating environments remain fragile amid ongoing health concerns," said Moody's managing director Celina Vansetti-Hutchins.

The lockdown has resulted in one-off gains in profitability, although pressures on capital are increasing.

"Profit growth will be modest because of low interest rates and subdued lending, but lower loan volumes should aid capital," added Vansetti-Hutchins. "Additionally, banks' lending and funding shifts in response to flatter yield curve dynamics and low rates will also pressure net interest margins."

The capital is expected to moderately fall in emerging Asia over the next two years, with banks in India and Sri Lanka likely to post larger capital declines without public or private injections.

In the insurance space, Moody's has a stable outlook on most lines of business citing "solid capitalisation", but rising equity allocations will add to investment income volatility.

The operating conditions in the EMEA region will be challenging, it said, adding that insurers might be vulnerable to intensifying pricing competition.

Moody's noted that weak medium-term economic growth will limit Latin American insurers' premium growth, which could lead to softer underwriting practices for certain segments participating in highly competitive markets.

Already registered?

Login to your account

To request a FREE 2-week trial subscription, please signup.
NOTE - this can take up to 48hrs to be approved.

Two Weeks Free Trial

For multi-user price options, or to check if your company has an existing subscription that we can add you to for FREE, please email Elliot Field at efield@newtonmedia.co.uk or Adrian Tapping at atapping@newtonmedia.co.uk


More on this story

Insurance
19 November 2020   Cost-saving measures during the pandemic helped brokers stabilise earnings and free cash flow.
Insurance
10 December 2020   Sector challenges include low interest rates, rising litigation costs and natural catastrophe frequency.
Insurance
18 March 2021   But outlook for Italy’s life insurers changes to stable from negative, says Moody’s Investment Service.