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2025 European Insurance Outlook: Opportunities Amid Subdued Growth

17 January 2025

2 min read

What You Need to Know

The backdrop as European insurers kick off 2025 is one of a likely soft economic landing globally, with subdued growth in Europe. Solvency has declined but is still in good shape. This could usher in greater focus on asset-liability management, hedging programs and the solvency efficiency of investments. The regulatory front is rather quiet now.

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Authors

Bob Sharma| MD, Head of Insurance EMEA & APAC, Client Group

Inigo Fraser Jenkins| Co-Head—Institutional Solutions

John Taylor| Head—European Fixed Income; Director—Global Multi-Sector

Soft Landings but Economic and Policy Divergence

Modest economic growth sets the backdrop for European insurers early in 2025. The global economy still seems broadly on track for a soft landing, and long-term inflation remains subdued. Because energy prices are stable, we’re more confident that inflation will gradually slow over the short to medium term. But a confluence of forces suggests that inflation rates will be above central bank targets, with banks continuing to ease policy at their own paces.

The US economy looks set for an even softer landing; euro-area growth risks tilted to the downside—though recession risks are likely contained. We expect the periphery to outpace core economies. Inflation should decline to target in 2025, enabling the European Central Bank to cut rates to neutral. The UK budget is expansionary and inflationary, so we expect stronger economic growth and a slower decline in inflation, with the Bank of England cutting rates more gradually.

The Investment Landscape for Insurers

Rates are down from their highs of the last couple of years, reducing solvency buffers—though buffers are still above pre-pandemic levels. Coupled with tight spreads, we think these changes to the macro landscape could spur an intensified focus on asset-liability management, hedging programs and the solvency efficiency of investments.

We think interest rates are likely to fall a little further in the medium term along with more divergence among central banks. The world’s three biggest economic drivers—the US, Europe and China—have become more diverse, so we expect rate paths and risk-asset valuations to follow. This could affect hedging costs, but we think the benefits of geographic diversification and relative outlooks for the US and Europe make this a cost worth bearing.

Barbell Exposure a Consideration in Credit

In credit markets, spreads remain at all-time lows, with little to suggest further tightening. But spreads have historically shown the ability to stay tight for a while. The shorter the duration, the tighter the credit spread versus historical averages—so, while spreads are tight, we think this hints at better value for credit risk in short-duration segments.

Ultimately, though, it’s critical for insurers to get aggregate duration positioning right—including key rate durations. We think it makes sense to barbell spread-risk exposure—spending more of spread-risk budgets in short-duration while leaning away from investment-grade corporates in long-duration exposures—balancing these long-duration buckets with government debt and private exposures. Such an approach could enable insurers to exploit better relative value and diversify balance sheet exposures.

From a big-picture perspective, the opportunity set across fixed income is wide-ranging. So, it seems sensible to us to consider a dynamic approach across sectors, including investment-grade debt, higher yielding credit and securitized assets. This provides the flexibility needed to lean into areas of opportunity as they emerge.

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The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

About the Authors

Bob Sharma

Bob Sharma is a Senior Vice President, Managing Director, and Head of EMEA and APAC Insurance for AB, where he is responsible for leading the insurance initiative across Europe, the Middle East and Africa (EMEA) and Asia-Pacific (APAC). In this role Sharma advises insurance clients on portfolio strategy, strategic asset-allocation topics, developments in the investment market and insurance industry dynamics. He joined AB in 2024 and has been working in the investment industry since 1999. Previously, Sharma held the role of managing director and head of EMEA Insurance at Wellington Management, where he led the insurance business for many years. Sharma holds a BSC (Hons) in economics from the University of Manchester. He is a CFA charterholder and holds the Sustainability and Climate Risk (SCR) Certificate from the Global Association of Risk Professionals.

Inigo Fraser Jenkins

Inigo Fraser Jenkins is Co-Head of Institutional Solutions at AB. He was previously head of Global Quantitative Strategy at Bernstein Research. Prior to joining Bernstein in 2015, Fraser Jenkins headed Nomura's Global Quantitative Strategy and European Equity Strategy teams after holding the position of European quantitative strategist at Lehman Brothers. He began his career at the Bank of England. Fraser Jenkins holds a BSc in physics from Imperial College London, an MSc in history and philosophy of science from the London School of Economics and Political Science, and an MSc in finance from Imperial College London. Location: London

John Taylor

John Taylor is Head of European Fixed Income and Director of Global Multi-Sector at AB. He is a senior member of the Global Fixed Income, UK and European Fixed Income, and Absolute Return portfolio-management teams. Prior to this, Taylor was responsible for the management of single-currency portfolios. He joined the firm in 1999 as a fixed-income trader and was named in Financial News’s 40 Under 40 Rising Stars in Asset Management in 2012. Taylor holds a BSc (Hons) in economics from the University of Kent. Location: London

2025 European Insurance Outlook: Opportunities Amid Subdued Growth

What You Need to Know

Soft Landings but Economic and Policy Divergence

The Investment Landscape for Insurers

Barbell Exposure a Consideration in Credit

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