Moody’s is retaining its stable rating for the global life insurance insurance as it expects “robust” demand for earnings and protection products over the next year.
However it noted that while mortality was generally improving, chronic conditions and long-term sickness were increasingly concerning, while the use of articficial intelligence (AI) and new technologies carried benefits and risks.
The US credit rating agency agency concluded that life insurance will continue to generate predictable recurring profit for insurers.
Although interest rates are falling in most regions, life insurers’ investment returns will hold steady because long-term government bond yields remain high, it said.
It added demand for retirement, guaranteed savings and protection products will stay robust despite stagnant economic growth reflecting aging populations and gaps in public pension and healthcare provision and while artificial intelligence (AI) brings opportunities, it also brings risk.
Robust demand
Over the next 12 to 18 months, Moody’s said it expected life insurers’ earnings to remain robust across most major global regions.
While stagnant economic growth and falling central bank rates in most countries will gradually weigh on new sales and profit margins, it added insurers will continue to reap healthy returns from their existing portfolios of long term policies.
According to the agency, demand for specific product types will remain strong in many markets, and insurers will protect their profitability by adjusting their business and asset mix.
In major markets, government bond yields remain relatively high, which will cushion the impact of lower rates.
Stabilising mortality, growing morbidity
Touching on mortality, Moody’s pointed to stabilising trends post-pandemic which is benefiting companies with large protection portfolios.
However, it noted in Europe and the US working-age death rates remained relatively high because of chronic conditions and lifestyle factors, as well as lingering Covid impacts.
Morbidity experience, it added, had generally been negative, linked in part to increased mental health and long-term sickness claims, particularly in Asia.
And while obesity treatments such as GLP-1 drugs could in time materially reduce claims, they have yet to show a clear impact on overall mortality and morbidity trends.
AI opportunities and risks
Turning to AI, Moody’s predicted life insurers globally will benefit due to the technology’s structured workflows and digitised operations.
It cited the example of large language models accelerating fixed income analysis, supporting asset-liability management and strategic asset allocation.
AI is also enhancing efficiency, customer experience, claims management, and fraud detection capabilities.
The agency said it expects increased use of AI in product design, risk selection, pricing and predictive analytics to further boost profitability and competitiveness.
However, Moody’s also pointed to risks related to poor data quality, limited model transparency, and bias from historical data sets.
It added regulations may evolve faster than governance, and dependence on a limited number of AI vendors increased concentration and lock in risk.
Cyber vulnerabilities, as illustrated by the recent cyberattack on Allianz Life Insurance Co of North America, and potential data privacy breaches were additional concerns.
Consequently, the agency called on insurers adopting AI to balance efficiency gains with strong governance, bias mitigation, and resilience planning.
In all regions, some groups with large complex legacy portfolios built up in part through mergers and acquisitions may also struggle to fund the effective roll out of AI.
Overall the agency retained its stable outlook on the global life insurance sector.
Though it added its outlook could change to positive if the macroeconomic environment were to improve significantly.
It could also change to negative in the event of an economic slowdown, a financial market downturn or an increase in regulatory scrutiny that put pressure on margins.
