Moody’s highlights ongoing COVID-19 challenges for insurers

Moody’s Investors Service has outlined the significant challenges for the insurance industry from the coronavirus pandemic and the consequent economic slowdown.
Writing in its EMEA Insurance Monitor, October 2020, the company states: “Although much of the impact from the coronavirus crisis will be short-term, we believe the more negative implications for EMEA insurers will emerge over the mid-to long-term.

“The most adverse long-term impact will likely be continued pressure on the sector's investment returns due to a further fall in interest rates. We also expect a rise in asset quality risk, as falling interest rates force EMEA insurers to invest in lower-rated securities and illiquid assets in the search for higher yields.

“The credit quality of insurers' fixed income portfolios will also likely deteriorate as a consequence of rating downgrades and corporate bond defaults during the coronavirus-induced recession. We nevertheless believe the industry has the capacity to absorb moderate shocks.”

Exploring how insurers will change the way they do business, the report added: “The coronavirus outbreak has also underlined the importance of adopting new digital technologies.

“We expect the pandemic to accelerate the transformation of insurers’ traditional businesses, pushing them to adopt more innovative digital solutions. We believe distribution and underwriting will increasingly move online, helping EMEA insurers reduce costs and remain relevant to policyholders.

“The shift towards greater digitalisation will also expose them to new data and security risks, and will require significant investment. Insurers seeking to catch up with the accelerated pace of digital transformation will likely increasingly invest in IT in the months ahead, and may also seek additional collaborations with InsurTechs.”

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