In response to rising interest rates, persistent inflation, and subdued economic growth, European insurers are poised to recalibrate their investment portfolios, gradually shifting towards higher quality bonds, according to a Moody’s report.
This move follows a previous trend where insurers increased exposure to lower quality instruments during the low-interest-rate era to enhance yields. European insurers are expected to gradually de-risk their bond portfolios, specifically moving towards more highly-rated corporate debt.
At the end of 2022, nearly half of insurers’ corporate bonds were rated Baa or lower, exposing them to potential risks from rating migration and defaults. The shift towards higher-grade bonds will be a measured process to avoid crystallising unrealised losses triggered by recent sharp increases in interest rates.
While insurers had increased exposure to…
