Regulatory risk and market volatility now worry insurance CFOs more than the poor returns on investment that had been their chief concern

European insurers’ chief financial officers are now worried more about regulatory risk and market volatility than they are about low interest rates and poor rates of return on investments. 

In its 2018 survey of leading insurers’ chief financial officers (CFOs), Moody’s Investors Service says regulatory risk and market volatility is now the top concern, with low-interest rates moving from top of the list to the bottom. 

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Moody’s says worries over the low rates, which had ranked as the industry’s biggest concern for the last two years, have eased “due to protective measures taken by insurers and expectations that interest rates are set to rise”.

Moody’s also states that incoming regulations such as GDPR and IFRS 17 contributed to the growing worry over regulatory risk, pushing this to the top.

Market volatility and regulatory risk were the only concerns to have increased over the past year, with low-interest rates, the competitive environment and low economic growth all easing.

Deployment of excess capital still on the agenda

About 40% of respondents plan to deploy excess capital, in line with last year. Moody’s believes European insurers are now more comfortable with the Solvency II regime, and therefore feel sufficiently confident to redeploy excess capital.

M&A is the most popular means of redeployment, cited by 33% of respondents.

Profitability expected to still pick up

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Fifty percent of respondents expect high to moderate growth in operating profit, up from 33% in 2017.

More insurers also anticipate an improved investment result and an increase in insurance demand compared to 2017.