Weak economic growth and restrictive regulations are expected to limit continued growth among European insurers, despite an improved performance last year.

The latest sector report from Moody’s Investors Service found major European insurers staged a recovery in 2009 after heavy losses severely dented 2008 earnings.

The ratings agency has adopted a cautious outlook for the sector despite the presence of rising investment returns.

“The improved performance in equity markets is largely mitigated by most insurers having de-risked from equities,” Moody’s senior analyst Paul Oates said.

He says insurers’ combined ratios are rising with premium rate increases barely able to cover claims inflation in the wake of severe winter storms in the region.

The agency says weak economic conditions and the effect of increased regulation could put further pressure on earnings.

Analysts point to continued uncertainty over the final shape of Solvency II requirements, set to take effect in Europe from 2012.