Moody’s Investors Service analysts highlight that chief financial officers (CFOs) from leading European insurers maintain a cautious sense of optimism regarding profitability, despite facing challenges such as sluggish economic growth and increased competition.
According to Moody’s report, the three primary concerns for CFOs in 2024 are sluggish economic growth, financial market volatility, and competitive pressure.
Nonetheless, Moody’s notes that “around two thirds foresee moderate profit growth of between 5% and 10%, reflecting higher revenues, price increases, and better investment results.”
However, this optimism is tempered compared to previous years, with none expecting profit to exceed 10% growth in 2024, contrasting with the 23% from the previous year.
Analysts highlight that over 40% of CFOs identify competitive pressure as a top concern. Particularly in the property and casualty sector, intense competition will make it challenging for insurers to raise prices adequately to cover increasing claims and reinsurance costs.
Life insurers are adjusting their savings policies to compete with higher-yielding asset management and banking products. Furthermore, climate change and increased regulatory scrutiny add further complexity to pricing strategies.
While the proportion of insurers planning to deploy excess capital has decreased since 2023, it remains relatively high at 41%.
The report outlines that investments in new business and distribution capabilities are a priority for 50% of respondents, followed by share buybacks, increased dividends, and mergers and acquisitions activities. Additionally, 44% plan to preserve economic capital, while 15% aim to bolster it.
Insurers are adopting a cautious approach in their investment allocations due to higher interest rates and sluggish economic growth. Plans include reducing exposure to riskier assets such as real estate, private equity, and high-yield bonds, while increasing investments in private credit, public equities, and Baa-rated debt.
Notably, infrastructure investments, particularly those aligned with Environmental, Social, and Governance (ESG) principles, are expected to grow, remaining a preferred choice for illiquid investments.
