Difficult times for the life insurance industry

Monday, February 20, 2012

The current Eurozone crisis, the weak demand for life insurance and predictions that premiums may go up are starting to hit insurers where it hurts, their credit ratings and their profits.

In an incredibly bad week for the industry, two of Europe’s biggest insurers have unveiled full-year results that were far worse than expected, as Axa posted a drop of 15% in adjusted earnings, whilst operating profit at Zurich was down by 12%.

Zurich and AXA have also reported a 4 and 5% drop in life insurance revenues respectively, this is compared to an increase in profits for home and car insurance policies.

At the same time, several major insurers have now been downgraded or put on a negative outlook by Moody, the credit rating’s agency, mainly because of their exposure to European debt.

Moodys had also begun to reassess Aviva, the largest insurer in Britain, because its life insurance arm is more likely to be vulnerable in a tougher economic climate, and has also warned about the future profitability of Scottish Widows and Clerical Medical.

Commentators have started to predict that demand for life insurance will continue to remain depressed this year, particularly when most regulators from Europe will start to pose structural challenges to the life insurance industry and could potentially raise premiums for their ordinary customers.

After 21 December this year, insurers in the EU will no longer be able to take gender into consideration when pricing their policies. This means women and men will pay the same price for their premiums, in spite of their different life expectancy.

According to the Office for National Statistics, at the end of 2009, average female life expectancy was at 82.3 years while the male average was 76.5 years.