Moody’s warns life insurers on sales as tax breaks end
CUTBACKS on life insurers’ tax breaks in Europe are a threat to their competitiveness that is being compounded by ultra-low interest rates in the region, credit rating agency Moody’s said yesterday.
European life insurers may see their sales volumes hurt if they fail to deliver better returns on life products than savings products offered by banks or asset managers, it warned.
Tough austerity measures to raise tax takes are causing governments to pare back tax advantages currently allowed to life insurers across European markets, particularly France, Germany, the UK and, until 2008, the Netherlands, Moody’s said.
Yet insurers are finding it hard to bolster returns through interest generated on their investments because of the current virtually-zero interest rate environment. This combination gives them almost no advantage over far more liquid investment options in banks.
Aviva, Europe’s fifth-largest insurer by market share, has targeted sales of unit-linked products and protection offerings, but like many diversified insurers says it is focused on profitability rather than sales growth.
Moody’s said the large diversified insurers would be in the strongest position as they could most easily adapt products and sales strategies to the difficult environment.
“In contrast, life insurers that fail to adapt to the new environment and rely on generic products with little differentiation…are most vulnerable and may see their credit profiles deteriorate in the longer term,” it said.