Fitch keeps European insurance sector outlook neutral at mid-year

Fitch Ratings has noted that the European insurance sector outlook remains ‘neutral’ at mid-year 2025, driven by stable business conditions despite a weaker economic outlook and increased financial market volatility.

At the same time, the rating agency has said individual countries’ life and non-life sector outlooks are ‘neutral’, except for Italian life and German non-life, which are still ‘improving’.

“For life insurers, we generally expect net flows into savings products to be steady, supported by declining returns on competing products, such as bank savings accounts,” Fitch said.

According to the rating agency, most European life insurers have limited direct exposure to financial market volatility, as most of the investment risk is borne by policyholders.

“Investment guarantees to customers are largely backed by highly rated bonds of similar durations. These are typically held to maturity, so the main risk, as economic growth weakens, is a potential increase in defaults. Pockets of higher risk exist, particularly in alternative and illiquid investments, with UK life insurers more exposed,” Fitch explained.

Meanwhile, for non-life insurers, Fitch noted that the pricing cycle has peaked in most countries and the firm expects pricing to remain adequate for the rest of 2025.

“Weaker economic growth may constrain revenue growth but may also reduce claims frequency,” Fitch added.

The rating agency also stated that European insurers are primarily exposed to second-order effects from US tariffs.

“In particular, non-life insurers may face a pick-up in claims inflation due to trade tariffs and related supply-chain disruptions, particularly affecting construction materials and motor spare parts,” Fitch said.

The rating agency continued, “European insurers have low to moderate exposure to potential weaknesses in the US economy, US dollar and US operating conditions. The most directly exposed are Europe-based global re/insurers and London market insurers.

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