Fitch Maintains Neutral Outlook for European Insurance Sector in Mid-2025

Fitch Ratings has upheld a 'neutral' outlook for the European insurance sector in mid-2025, indicating stable business conditions despite a challenging economic environment and increased market volatility. The neutral stance applies broadly across both life and non-life insurance sectors in most European countries, highlighting resilience amid uncertainty.

The outlook for the Italian life insurance sector and the German non-life sector is 'improving,' driven by strong product demand and favorable pricing conditions, respectively. Specifically, Italian life insurers benefit from sustained attractiveness of savings products as government bonds become less appealing due to falling interest rates.

European life insurers maintain limited direct exposure to financial market volatility, as investment risks are primarily transferred to policyholders. Investment guarantees are backed by high-quality bonds held to maturity, offering protection against short-term market fluctuations. Nonetheless, exposure to potentially rising default risks exists, which could intensify under worsening economic conditions.

Alternative and illiquid investments represent a higher risk segment within European portfolios, with UK life insurers notably more exposed. In the non-life insurance segment, Fitch observes that pricing cycles have peaked but will remain adequate through the end of 2025. Economic slowdown may reduce revenue growth but could concurrently lower claims frequency.

Germany's non-life insurance market shows robust pricing momentum and improved underwriting margins, contributing to superior sector performance. European insurers also face indirect inflationary pressures from US trade tariffs, particularly affecting the cost of claims related to construction materials and motor parts, impacting non-life insurance costs.

Overall, the European insurance sector's exposure to US economic factors is assessed as low to moderate, with global reinsurers and London market participants being the most directly influenced. This outlook underscores the sector's adaptive strategies amid macroeconomic and geopolitical challenges, reinforcing stability across major European markets.