Challenges and opportunities for insurance in the EMEA zone

What future prospects?

The COVID 19 crisis has caused insurers to experience a drop in written premiums, an increase in claims, and volatility in financial assets.

Despite these negative effects, insurers have shown resilience and the level of recovery of their activity following the relaxation of health measures has been quite satisfactory. We believe that life insurers will experience a positive evolution of their margins thanks to their policy of controlling costs, their reorientation towards insurance products that consume less capital and their search for higher returns, in addition to the gradual recovery of interest rates. ‘interests. Regarding non-life insurers, we expect their margins to remain robust despite increased competition and the non-recurrence of exceptional items in 2020.

We believe that the resumption of activities in a still uncertain context, particularly on the financial level, constitutes in the short term the main challenge that insurers in the EMEA zone will have to face. In the long term, we believe that they will also be faced with climate change, cybersecurity issues and the increase in the frequency and cost of claims. However, we also see these challenges as potential opportunities.

Due to inflation and supply problems linked to the current macroeconomic and geopolitical context, insurers are directly exposed to investment risks. These risks tend to increase in a context of high equity market valuations.

However, even if insurers are increasingly directing their investments towards alternative and riskier vehicles by turning away from traditional assets where yields are low, their exposure to bonds rated in the speculative category remains limited. Moreover, this search for yield is also an opportunity for insurers to direct their investments towards assets corresponding to their ESG ambitions and to meet zero carbon emission targets. In fact, we are seeing an increase in investments by insurers in infrastructure and residential real estate.

Although the insurance sector has been one of the most resilient sectors to the COVID 19 crisis and insurers seem well prepared to face the future challenges to which they are exposed, operational changes such as the digitalization of services , cybersecurity and reliance on cloud servers could lead to higher costs that could weigh on their balance sheet. The ability of insurers to develop their own IT tools and reduce their dependence on technology companies will be a real competitive advantage.

Eléonore Landolt, Research Assistant

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