Sovereign states and private employers across Europe are increasingly stepping back from providing for individuals in their retirement, says Moody's Investors Service in a new Special Comment published today. This increases the onus on individuals to provide for themselves and look for ways to supplement their retirement income, creating an opportunity for life insurers to fill the pensions gap.
Moody's says that the long-term growth opportunities arising from the shift in pension provision will be credit positive for life insurers. However, whilst macro pressures across Europe will provide near-term constraints to such growth, competition from banks and asset managers will provide longer-term constraints.
The report, "European Pensions: Opportunity for Life Insurers, But Macro Challenges Will Suppress Demand" is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Moody's believes that the shift towards increasing the onus on individuals to provide for themselves in their retirement years creates significant opportunities for life insurers (as well as banks and asset managers) to make up the shortfall between the retirement expectations of the individual and the reality of their retirement provision.
Moody's also says that pensions products sold by life insurers continue to benefit from tax advantages in many European jurisdictions. If these tax advantages continue, Moody's expects life insurers to be well placed to take advantage of these shifts, relative to other types of financial institution.
However, demand for life insurance and pensions across Europe is likely to remain pressurised in the near-term, given the macro economic challenges with many households' discretionary spending under pressure. At the same time, Moody's believes that life insurers face two main challenges in obtaining this business: (1) encouraging consumers to act; and (2) defending against the challenge of asset managers and banks, particularly in those markets where tax incentives for pension products have been removed or reduced. In addition, insurers providing annuities are exposed to longevity risk in the event of their policyholders living longer than expected when pricing the annuity at retirement.
Subscribers can access the report via this link: http://www.moodys.com/research/European-Pensions-Opportunity-for-Life-Insurers-But-Macro-Challenges-Will--PBC_156343
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