Though first-half 2009 results from European insurers indicate a
recovery in investment market performance in the second quarter
after significant losses in the first, the business environment
remains “deeply challenging”, cautions David Masters, an analyst at
rating agency Moody’s.
Expanding on his view, Masters said that the rebound in equity
indices and credit spread tightening in the second quarter of 2009
brought some relief to insurers' investment performance,
at least compared to the first quarter.
However, many insurers are continuing to engage in balance-sheet
de-risking exercises and, in the medium term, Moody’s anticipates
that insurers’ low-risk asset strategies could present what Masters
termed “an earnings constraint” for them.
Commenting on the life insurance sector specifically, Masters
observed on a somewhat positive note that while sales were
unsurprisingly down year-on-year in the first half of 2009, the
fall was not by as much as may have been anticipated.
However, Moody’s anticipates that life sales will remain low into
early 2010 at the very least.
Masters added that first half 2009 sales results also reflected a
slight increase in margins compared with the first half of 2008
though this was the result of changes in the mix of products sold
rather than actual improvements in underlying profitability.
Capital allocation, he explained, is more focused now on
higher-margin business than pursuing top-line growth at the expense
On balance sheet issues, Masters noted that debt issuance increased
during the second quarter of 2009. Because subordinated and hybrid
debt remains expensive for most insurers activity was focused on
senior debt issues.
“Even among those European insurers able to access capital markets
in the current conditions, issuance remains opportunistic and
likely to be focused on pre-financing future liquidity/capital
requirements,” Masters noted.
Overall, given first-half 2009 results and its expectations for the
remainder of 2009, Moody’s outlook on the European insurance
industry remains negative.
The rating agency’s concerns are driven by current balance sheet
strength of insurers and their ability to repair capitalisation
levels in the face of what it anticipates will be suppressed
earnings for the “foreseeable future”.