Life changing: The outlook for life insurance in Europe

Life insurers are not immune to the after-effects of the Eurozone crisis. Amidst a “perfect storm” of low yields, strong competition and increasing capital pressures, Europe’s leading life insurers’ are at a crossroads and feeling the pressure. As the industry faces its toughest challenge in a decade, life insurers will need to take decisive action on strategy and business model in order to safeguard the future viability of the industry.

The Linklaters insurance team have published a report concerning the outlook for European life insurers, particularly in light of the persistent low yields on highly-rated government bonds. The report, 'Life changing: The outlook for life insurance in Europe', is based on a survey of 100 finance directors and investment decision-makers in a cross-section of European life insurers, representing just under one-fifth of the total European life insurance market.

In this short video, Linklaters’ global Insurance sector leaders, Victoria Sander and Wolfgang Krauel, discuss the candid views of European life insurers and the issues affecting the future of the industry.

Like other investors, insurers are suffering in the current low-yield environment. The problem is particularly acute for life insurers, whose business models assume stable long-term investment income to fund attractive (and often fixed) long-term policyholder obligations. Adding to the squeeze between investment returns and policyholder liabilities are capital requirements, including the anticipated effects of Solvency II. This confluence of factors is driving decision-making in the life insurance sector.

According to our research, European life insurers are engaging in yield-seeking behaviour and are starting to think about the strategic direction of their businesses. If low yields persist (as most of the surveyed insurers predicted they will), some are expecting dramatic changes in the European life insurance market as a result of consolidation, run-offs and even insolvencies, whilst others are actively looking beyond Europe to emerging growth markets.

Life changing combines Linklaters’ legal and market insight with the candid views of 100 senior executives from Europe’s largest life insurers, representing around one-fifth of the market. Our study reveals that European life insurers are actively taking steps to preserve margins, such as cutting costs, reviewing product design and adopting more aggressively yield-driven investment  strategies. If yields remain low, however, more radical action is forecast, including capital-raising, consolidation, continued expansion outside Europe and even run-off and insolvency.

Report Contents
  • Introduction
  • Life support: The challenge of underperformance in the European life insurance industry
  • Diminishing margins: A “perfect storm” of regulation and low interest rates
  • A dangerous game: Over-reaching for yield
  • New life: The future of life insurance in Europe