Moody’s Investors Service has kept its outlook for the global life industry at stable, citing the sector’s strengths including strong capital levels that would help it weather slowing economic growth. 

Rising interest rates in most markets have also paved the way for higher investment income, allowing insurers to invest new money at yields higher than their current portfolio yields. 

Moody’s says profitability of interest-sensitive, guaranteed, and spread-based products has improved as interest rates rose. 

“With more than half their invested assets held in bonds, life insurers benefit when interest rates rise,” VP and analyst Manoj Jethani said. 

“This will happen both immediately, as insurers invest new premiums in higher-yielding securities, and incrementally, as existing portfolio investments mature and are reinvested at higher, prevailing interest rates.” 

According to Moody’s, most global insurance companies hold diverse and relatively conservative investment portfolios. 

Most US life insurers hold their investments in fixed income securities, which generally account for between around 70% of total investments, with an average portfolio quality in the single-A rating range. 

In Japan, rising domestic and foreign interest rates will boost yields and the depreciating yen will increase the yen value of non-yen assets. 

Moody’s is also expecting mergers, acquisition and disposition activity to continue next year, citing capital providers’ interest to pursue insurance acquisitions and insurers’ plans to push ahead with divestment of certain capital-intensive businesses. 

“Although inflation will erode the value of fixed income assets, the policy response to inflation, in the form of higher interest rates, could increase potential valuations for a buyer, because a steeper yield curve will allow insurers to invest new money at higher interest rates, improving investment returns and profitability,” it says. 

“For US insurance companies, the strengthening of the US dollar (or weakening of foreign currencies) reduces the earnings from international operations, potentially reducing the valuation of a company's business. 

“The lower prices could potentially lead to increased M&A activity for companies seeking to expand their international footprints.”