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Financial Mirror (Cyprus) - - FRONT PAGE -

Grad­ual, global eco­nomic re­cov­ery and de­clin­ing un­em­ploy­ment rates will support the growth of both prop­erty and ca­su­alty (P&C) pre­mi­ums and life in­surance sales next year, with Moody’s In­vestors Ser­vice main­tain­ing its sta­ble out­looks for both sec­tors glob­ally for 2015.

“We ex­pect P&C pre­mi­ums to keep pace with eco­nomic growth in ad­vanced economies and to out­pace eco­nomic growth in emerg­ing economies, which sup­ports our sta­ble sec­tor out­look,” said Bruce Bal­len­tine, a Moody’s Se­nior Credit Of­fi­cer. “We see P&C pen­e­tra­tion rates hold­ing steady in ad­vanced mar­kets and ris­ing grad­u­ally in emerg­ing mar­kets.”

Fur­ther­more, low mar­ket in­ter­est rates, which con­strain in­vest­ment yields, have the off­set­ting ben­e­fit of pro­mot­ing un­der­writ­ing dis­ci­pline, the rat­ing agency said. In­sur­ers’ bal­ance sheets are gen­er­ally sound, char­ac­terised by high­qual­ity in­vest­ments, ad­e­quate re­serves and good cap­i­tal­i­sa­tion. P&C in­sur­ers also ben­e­fit from the manda­tory na­ture of ma­jor business lines, such as auto in­surance to reg­is­ter a car and home in­surance to fi­nance a home. Moody’s said it ex­pects P&C pre­mi­ums to grow in the low sin­gle dig­its in North Amer­ica and most of Europe, and con­sid­er­ably faster in emerg­ing mar­kets, which will pro­vide at­trac­tive op­por­tu­ni­ties for growth in 2015, al­beit at a slower pace than in re­cent years. It also ex­pects that China’s nom­i­nal P&C growth rate will ease to the mid­dou­ble dig­its; China ranks among the top three coun­tries glob­ally in P&C pre­mium vol­ume. In Latin Amer­ica, P&C growth could ease with the slow­down in the re­gion’s economies, but nom­i­nal pre­mium growth is likely to re­main in the mid-sin­gle dig­its.

On the down­side are a num­ber of chal­lenges: the risk of nat­u­ral and man-made catas­tro­phes, pric­ing/re­serv­ing for long-tail lines and an un­cer­tain reg­u­la­tory en­vi­ron­ment. P&C in­sur­ers have with­stood the ef­fects of sev­eral ma­jor catas­tro­phes in the past decade, with cap­i­tal lev­els hold­ing up well, but they are closely track­ing cli­mate change and po­ten­tial ris­ing sea lev­els, which could re­sult in more se­vere events.

Moody’s said that the ben­e­fit from the grad­ual, global eco­nomic re­cov­ery, as well as a de­clin­ing em­pha­sis on spread-based and guar­an­teed prod­ucts, which will partly off­set de­clin­ing in­vest­ment mar­gins. In ad­di­tion, ris­ing eq­uity mar­kets in 2014 will support the per­for­mance of fee-based prod­ucts into 2015.

“Most of our life in­surance sec­tor out­looks across the globe are sta­ble, driven not just by the eco­nomic re­cov­ery and de­clin­ing un­em­ploy­ment gen­er­ally, but also by ris­ing as­set prices and an im­proved prod­uct mix, which will off­set the ef­fects of low in­ter­est rates,” said Ben­jamin Serra, a Moody’s Se­nior Credit Of­fi­cer. “A few out­looks for Europe re­main neg­a­tive, no­tably for the UK, Ger­many, and the Nether­lands.”

Moody’s ex­pects that con­sumers’ higher dis­pos­able in­come, thanks to global growth driven by the US and emerg­ing mar­kets, will support sales of life in­surance sav­ings and pro­tec­tion prod­ucts. In Europe, how­ever, chal­lenges for life in­sur­ers per­sist owing to still-high un­em­ploy­ment in France and Italy, and un­cer­tainty stem­ming from leg­isla­tive changes, es­pe­cially in the UK.

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