Global life insurance 2024 outlook stable as higher rates offset weaker revenue

Moody's Investors Service said its outlook for the global life insurance sector is stable, unchanged from last year. Life insurers in most regions continue to benefit from higher interest rates, which have reinforced the sector's economic capital and will gradually improve its investment returns. However, Moody's said it expects weaker economic growth and still high inflation to erode household incomes, weighing on demand for discretionary life products. Life insurers may also absorb some losses from higher risk investments taken on to boost yields during the low interest rate era.

• Higher rates provide gradual earnings support, immediate capital relief. Rates have
  risen since 2022 in all regions except China, Moody's reported, adding it expects rates to remain close to current levels at least until the middle of 2024. This will support insurers’ investment returns, although the improvement will be slower for those with long dated assets. Higher rates will also make savings policies offering guaranteed rates of return more sustainable and reduce the present value of life insurers’ liabilities, bolstering their capital adequacy.
• Weaker economy, increased competition will weigh on revenues. Moody's predicted weak economic growth, higher unemployment and slower real wage increases will erode demand for
  some life products in many regions. Competition from higher yielding banking and asset management products will hurt sales of savings products and encourage policy surrenders,
  although these have remained low so far. Merger and acquisition activity will likely continue, although regulators are scrutinizing private capital inflows into the industry more closely.
• New accounting and regulatory changes do not alter credit fundamentals. The Long Duration Targeted Improvements accounting changes in the U.S. and the IFRS 17 accounting regime in other regions have provided a more economic view of earnings and capital, Moody's said. In Asia, new economic solvency rules have prompted some insurers to raise capital and sell guaranteed product portfolios. Regulators globally are also focusing more on consumer protection.
• Some asset risk might materialize. Insurers may absorb losses on some higher risk investments they took on to boost yields when rates were low, but we expect the impact to be manageable. Moody's said it expects life insurers to trim their appetite for riskier investments, including some illiquid and alternative assets, as financial conditions tighten.
• What could change the outlook. Moody's said its outlook could turn negative if a macroeconomic deterioration or financial market downturn eroded life insurers' revenue, earnings and capital, or if there were a significant increase in the sector's regulatory burden. It could turn positive in the event of a rebound in economic growth coupled with stronger earnings and capital.