This report does not constitute a rating action.
(Editor's note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential shifts and reassess our guidance accordingly [see our research here: spglobal.com/ratings].)
Key Takeaways
- European reinsurers and insurers (re/insurers) brace themselves for tariff tremors.
- Due to the pronounced effect of tariffs on capital markets in the U.S., Asia, and Europe, re/insurers' investments could be more affected by tariffs than by other risks.
- Our stress test revealed that equity market stress would have the most pronounced effect on European re/insurance ratings.
Global equity and bond markets experienced a sharp decline after the tariff announcements. Ripple effects could spill over to real estate, private equity, and private debt markets, which are all areas re/insurers are invested in. The high uncertainty about the market direction and the duration of the market downturn could affect re/insurers over the short to medium term.
While short-term market fluctuations are reflected in re/insurers' quarterly financial reports, losses from asset investments typically materialize after six to twelve months.
Given the investment-heavy nature of their business, European re/insurers are exposed to market risk. Tariff-related risks that could affect the re/insurance sector include:
- A decline in life and non-life insurers' top-line growth in the case of an economic deterioration; and
- Increases in claims costs and combined claim and cost ratios.
Yet these risks are unlikely to affect our ratings or outlooks on European re/insurers over the short to medium term.
That said, a prolonged market weakness could impair European re/insurers' balance sheets. Investment risks are typically more pronounced for life insurers than for non-life insurers or reinsurers. We note that market risk accounts for more than 50% of the risk that European life insurers are exposed to, as measured by our risk-based capital model and Solvency II.
Market assumptions also influence the contractual service margin under international financial reporting standard (IFRS) 17 and the risk adjustment, both of which we consider in our assessment of insurers' total adjusted capital. In the case of insurers that do not report under IFRS 17, our capital assessment factors in our assumption about the embedded value in-force business, which depends on market assumptions.
We note that most European primary insurers that we rate offer both life and non-life insurance and display a high degree of diversification.
Depending on the extent and length of the market downturn, financial leverage and coverage ratios could deteriorate. Insurers might reduce debt issuances and delay refinancing plans. That said, we note that European insurers hold legacy tier 1 instruments that will likely require refinancing by January 2026. The refinancing costs for re/insurers could therefore increase.
Equity market stress would have the strongest effect on European re/insurers, even though their asset allocation tends to be prudent. In December 2024, we assessed the effects of a moderate stress scenario on our ratings on re/insurers in Europe, the Middle East, and Africa (EMEA). The hypothetical stress scenario was in line with the 99.5% confidence level in our risk-based capital model (see chart 1).
The stress test revealed that moderate stress would affect about 10% of the ratings on re/insurers in EMEA. This outcome takes into account the capital surplus that European re/insurers hold in addition to the minimum amount that is required at the current rating level. It is also based on the assumption that management would not take any action to reduce risk or strengthen the capital position while the scenario unfolds.
Our Current Rating View On EMEA Insurers Is Stable
The tariffs would only affect our ratings and outlooks on European re/insurers if the capital market downturn persisted or if economic effects exceed our current expectations. Even a sharp decline in 2020, followed by a rapid recovery, did not materially impair European re/insurers' capital position (see chart 2). We currently view the European re/insurance sector as stable, not least due to the robust capital surplus, which we expect will exceed €100 billion over 2025-2026.
This estimate is based on rated re/insurers' latest capital surplus and the assumption that listed re/insurers' dividend distributions and share buybacks will continue. This capital adequacy is a key rating strength for European re/insurers, while the capital surplus provides some protection against potential investment risks.
Related Research
- Balancing Act: Hybrid Capital Usage Among European Insurers, March 4, 2025
- A Prolonged Financial Market Downturn Would Erode Insurers' Surplus Capital Across EMEA, Nov. 25, 2024
- European Insurance Outlook 2025: Holding Up Well, Nov. 21, 2024
| Primary Contact: | Volker Kudszus, Frankfurt 49-693-399-9192; volker.kudszus@spglobal.com |
| Secondary Contacts: | Taos D Fudji, Milan 390272111276; taos.fudji@spglobal.com |
| Emir Mujkic, Dubai 971-43727179; emir.mujkic@spglobal.com | |
| Tatiana Grineva, London 44-20-7176-7061; tatiana.grineva@spglobal.com | |
| Johannes Bender, Frankfurt 49-693-399-9196; johannes.bender@spglobal.com | |
| Andreas Lundgren Harell, Stockholm 46-8-440-5921; andreas.lundgren.harell@spglobal.com | |
| Mark D Nicholson, London 44-20-7176-7991; mark.nicholson@spglobal.com | |
| Robert J Greensted, London 44-20-7176-7095; robert.greensted@spglobal.com | |
| Marc-Philippe Juilliard, Paris 33-14-075-2510; m-philippe.juilliard@spglobal.com | |
| Charles-Marie Delpuech, London 44-20-7176-7967; charles-marie.delpuech@spglobal.com | |
| Simon Ashworth, London 44-20-7176-7243; simon.ashworth@spglobal.com | |
| Liesl Saldanha, London 44-20-7176-0489; liesl.saldanha@spglobal.com | |
| Ralf Bender, CFA, Frankfurt 49-693-399-9194; ralf.bender@spglobal.com |
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