A.M.BestTV: In Europe, Low Rates A ‘Double-Edged Sword’

OLDWICK, N.J.--(BUSINESS WIRE)-- In this “First Monday” episode, A.M. Best’s Managing Director of Analytics Stefan Holzberger explains how the low interest rate environment is creating refinancing opportunities but also is producing mismatched portfolios with depressed investment returns. Click on http://www.ambest.com/v.asp?v=fmeurorates715 to view the video program. “First Monday” is A.M. Best’s monthly program featuring commentary by the company's leading analysts.

While the low interest rate environment is beneficial for life and non-life insurers that are issuing debt, reduced levels of investment income continue to generate pressure. Holzberger discusses how low interest rates are a ’double-edged sword’ for European insurers. “On the one hand, you have the benefit of low-debt financing costs as well as the ability to redeem debt that had been issued in prior years, which are carrying very high interest rates, bringing those down generate substantial savings in terms of interest expense. In addition, A.M. Best has seen very low inflationary conditions, and in particular, for non-life, the low-inflation environment is allowing redundancies to continue to collect in the books of business in Europe. This is good for financial flexibility and it is good for lowering debt financing costs. However, the negative side of the equation, is the reduction in investment income, and in today's competitive market environment, together with very low investment yields, it is becoming harder and harder for insurance companies on the non-life side to produce the kind of returns that the market is expecting.”

“On the life side, the situation is much more dire. In the past, insurers offered guaranteed rates that are huge legacy books of business. However, contrast those guaranteed rates with the current yield on the investment portfolio and you have the mismatch,” continued Holzberger.

Recent episodes of A.M.BestTV include:

• British European Union Exit Could Hit the U.K. Insurance Industry: Director of Analytics Catherine Thomas speaks about how the city’s standing as a key global insurance center would be diminished if the United Kingdom were to exit the European Union: http://www.ambest.com/v.asp?v=fmeuexit715.
• European Insurers Ramp Up Capital Market Activity: Managing Director of Analytics Stefan Holzberger speaks about how market conditions and the looming start of Solvency II have prompted European insurers to increasingly tap the capital markets: http://www.ambest.com/v.asp?v=fmeurodebt715.
• London Market Competition Intensifies: Director of Analytics Catherine Thomas speaks about how traditional business models in the London market are threatened by changing market dynamics and economic uncertainty: http://www.ambest.com/v.asp?v=fmlondon715.
• U.S. State Funds Ride Market Momentum: Senior Financial Analyst W. Dolson Smith says increased payrolls, along with higher premium rates and more stringent underwriting, has led to a fourth consecutive year of growth, based on net premiums written, in the U.S. workers’ compensation residual market. Click on http://www.ambest.com/v.asp?v=fmstatefunds715.

A.M.BestTV covers exclusive A.M. Best information and reports, targeted topics and key developments in the (re)insurance industry every Monday, Wednesday and Friday. Sign up for alerts of episodes at http://www.ambest.com/multimedia/ambtvsignup.html. View A.M.BestTV episodes at http://www.ambest.tv.

A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150710005481/en/

A.M. Best Company, Inc.
Lee McDonald, 908-439-2200 ext. 5561
Group Vice President, Publication and News Services
[email protected]

Source: A.M. Best Company, Inc.

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