S&P calls EMEA insurers to focus on preserving capital, earnings

Western European insurers' rating stability will depend on their ability to preserve capital and earnings, according to an S&P Global Ratings report.

The main concern for Western European life insurers in 2018 will be to manage their legacy traditional saving and pension back books amid persistently low interest rates, while property/casualty (P/C) players could struggle to maintain underwriting discipline in the very competitive European markets, the report says.

In Europe, the Middle East, and Africa (EMEA), emerging markets, economic, geopolitical, and sovereign-related volatility are likely to continue influencing the creditworthiness of insurers, whose ongoing challenges will only become more acute during 2018.

Economic prospects in the eurozone have improved. However, the lack of clarity regarding Brexit is increasing uncertainty, particularly in the UK. Furthermore, central banks are preparing to unwind their accommodative monetary policies, which could, in turn, sharpen asset price volatility risks.

Insurers will also continue to face a heavy burden of new prudential regulation and conduct of business rules. At the same time, insurers cannot lose sight of fast-growing new risks and trends. Such risks bring insurers both opportunities and challenges. Insurtech is spreading through the insurance value chain, making "disruption" risk one of insurers' top concerns. In response, many are accelerating the digitization of their processes.

On the cyber risk front, insurers will continue looking to enhance the protection of their balance sheets and reputation against cyberattacks. At the same time, for some, cyber-risk protection offerings could become a growth and diversification engine. Similarly, climate change presents underwriting, reputational, and operational risk. Increasingly, insurers are aiming to manage such risks through explicit pricing on the liability side and more-prominent green investment policies on the asset side.

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