International credit ratings, research and risk analysis company Moody’s Ratings has reiterated its stable outlook for the European property and casualty (P&C) and life insurance industries, while highlighting growing pressures from competitive pressures, slowing economic growth and geopolitical uncertainty.
Property and casualty insurers’ profitability has returned to pre-COVID-19 pandemic levels, mainly due to higher premiums in European markets over the past year, Moody’s said.
However, the agency believes that room for further earnings improvement becomes more limited as slowing economic conditions increase competitive pressure and reduce the benefits of lower reinsurance costs.
Life insurers are expected to continue to benefit from strong demand for savings and retirement products, Moody’s said. The company noted that lower short-term interest rates and higher long-term interest rates increase the attractiveness of long-term insurance products compared with short-term banking options.
This trend is expected to support premium growth and reduce policy cancellations, particularly in markets such as France where competition between banks and insurers remains fierce. Still, Moody’s warned that the life insurance industry’s profitability could come under pressure.
In the UK, competition for bulk purchases of annuity business and suitable long-term assets is impacting profit margins, the agency said. Across the continent, insurers also face ongoing regulatory scrutiny over whether products offer customers appropriate value for money, although proposals for legislation have been slow to progress.
Moody’s said its core forecast assumes the conflict in the Middle East will have only a limited impact on European insurers. In this scenario, the company expects the main impact to be an increase in marine and professional insurance claims, which remains manageable for most companies.
However, the agency warned that a prolonged escalation could lead to higher energy prices, weaker economic activity, higher claims inflation and lower profitability. Moody’s Ratings also said further market instability, including falling stock prices and widening credit spreads, could weaken insurers’ solvency.
Insurers in major European markets have largely offset rising inflation and weather-related claims costs through premium increases, the agency reported. Combined ratios in several countries have now returned to or exceeded pre-pandemic levels. Moody’s Ratings added that some insurers are still benefiting from pricing measures introduced last year, although future earnings are expected to slow as premium growth aligns more closely with claims inflation in the motor and property insurance markets.
In the UK, Moody’s observed that insurance prices have started to fall, which the company said could lead to weaker underwriting results in the coming months. The agency also expects investment returns from property and casualty insurance companies to stabilize after several years of improvement.
Moody’s said recent reinsurance renewals were moderately positive for major insurers. The company noted that some of the larger and more diversified insurers received broader reinsurance protection, increased coverage for frequent loss events and, in some cases, enhanced protection against major catastrophes compared with previous years. However, Moody’s Ratings highlights that these improvements are not evenly distributed across the industry.
The agency expects life insurance growth opportunities to remain strong in regions such as the UK and the Netherlands, where pension takeover activity continues to expand. Moody’s also noted that insurers have recently increased sales of investment-linked products after a period when guaranteed products dominated the market.
On the investment side, Moody’s said insurers generally continue to maintain relatively conservative investment portfolios, although exposure to illiquid assets, particularly private credit and securitized products, is expected to gradually rise as companies seek greater diversification and returns.
Moody’s reports that solvency ratios across the European insurance industry will improve in 2025, supported by rising interest rates and stronger profitability. Still, the company warned that insurers remained exposed to risks from falling stock markets and rising government bond spreads. Moody’s Ratings views France’s 2027 presidential election as a potential source of uncertainty because of the impact it could have on sovereign bond markets.
The agency also highlighted continued pressure from shareholders for distributions. According to Moody’s, dividends and share buybacks will account for nearly 70% of large primary insurers’ profits in 2025.
The company expects shareholder payouts to remain elevated, supported by recent changes to Solvency II capital rules. Moody’s Ratings believes that if interest rates remain relatively stable, this will improve the solvency ratios of most insurers from 2027 onwards.