LONDON (Reuters) - European and U.S. life insurers will seek takeovers in booming Asia and put more money into riskier assets this year to bolster flagging profits, Moody’s said on Monday.
The outlook for developed world life insurers is negative, Moody’s said in its annual overview of the sector, with investment income under pressure from rock-bottom rates, and sales wilting as stagnant economies force consumers to retrench.
Life insurers will likely respond by buying up rivals in faster-growing emerging markets, and by increasing their investment in riskier assets that yield higher returns, Moody’s said.
Recent emerging market acquisitions by European insurers include Prudential’s takeover of Thailand’s Thanachart Life in November last year, and Zurich Insurance Group’s ZURN.VX purchase of Santander’s (SAN.MC) Latin American insurance unit in 2011.
Insurers seeking to boost their investment returns could put more money into equities, infrastructure or direct commercial loans.
Sovereign and corporate bonds, traditionally seen as low risk, accounted for 62 percent of European life insurers’ investment portfolios at the end of 2011, according to Moody‘s.
Central banks in the United States and Europe slashed interest rates close to zero to prop up the economy in the wake of the 2008 banking crisis, dragging down bond yields, and eating into insurers’ investment income.
Life insurers in Germany and France, whose best-selling products are savings policies that offer customers guaranteed minimum returns, have been hardest hit. Many are cutting their guarantees and trying to sell more alternative products where investment risk is borne by the customer.
U.S. and European life insurers face a further threat this year from potential sovereign debt crises, amid lingering worries over the creditworthiness of peripheral euro zone countries, Moody’s said.
Last year, Moody’s downgraded the credit rating of Spanish and Italian insurers, and also changed the outlook for pan-European players Allianz, Axa and Aviva to negative, reflecting their heavy exposure to bonds issued by critically-indebted euro zone nations.
Reporting by Myles Neligan; Editing by David Cowell