European life insurers are not prepared to provide policyholders with value for money in the face of rising interest rates and inflation, research has said.
A report from BdV, the German Association of Insureds, and Better Finance, the European Federation of Investors and Financial Services Users, examined the stability of key EU insurers. The 10 largest life insurers from France, Spain, Italy, Germany and the Netherlands were included in the analysis.
The report concluded threats to solvency are no longer “a chief concern” post-Covid, although insurers are now faced with issues around rising interest rates and inflation. It warned life insurers are “broadly not prepared” to provide enough value for money as a result of these issues.
The analysis noted a rise in solvency ratios due to increasing interest rates but this effect was “purely technical.”
“[Rising rates] do not significantly help the existing policyholders due to the long durations of the existing assets and a lack of asset diversification, meaning they will only benefit from increasing interest income over time,” the report said.
On inflation, the report described how government bonds particularly dominated the investment portfolios of life insurers in Italy, the Netherlands and Spain, making it “very difficult” to compensate for inflation.
Gallagher Re had previously suggested insurers need to consider several issues in dealing with inflation risk, ranging from re-evaluating deductibles on policies, to reserve risk.