European insurers are expected to close the year in a solid position, supported by resilient underwriting results, robust capital buffers, and effective strategic adjustments across the sector, according to a midyear report by S&P Global Ratings, a provider of independent credit ratings, research, and analytics.
In its latest publication, European Insurance Midyear Outlook 2025: Strong Finish Ahead, S&P Global Ratings maintains a stable outlook for the European life and non-life insurance markets.
S&P Global Ratings attributes this stable sector assessment to the strong diversification of most insurers and their ample capital surpluses, which exceed the requirements needed to support current ratings.
“Most European life and non-life insurers’ margins are robust. Yet life insurers need to provide attractive products, while juggling rising reinvestment rates, unrealized losses on long-dated bond investments, and falling short-term interest rates,” S&P Global Ratings credit analyst Volker Kudszus commented.
According to the agency, 82% of European insurance ratings are currently stable, with several upgrades and just one downgrade registered so far in 2025. These outcomes reflect what S&P Global Ratings describes as “material capital buffers” across the industry.
S&P Global Ratings notes that competitive pressure is mounting among non-life primary insurers, particularly in motor insurance, where claims inflation remains persistent due to rising repair costs and vehicle part prices. While some markets such as the UK have responded by increasing premiums, others—including Germany—are still working to bring pricing in line with inflationary trends.
At the same time, life insurers are managing to maintain generally healthy margins, though they face distinct challenges.
According to S&P, these include rising reinvestment rates, unrealised losses on long-dated bond holdings, and softening short-term interest rates. To navigate these pressures, many life insurers are actively transitioning toward capital-efficient product offerings.
Reinsurance conditions remain favourable, although S&P observes early signs of market softening. The agency expects reinsurers will need to adapt by offering more attractive terms and structures to maintain their relationships with cedants.
At the same time, exposure to natural catastrophes continues to be a limiting factor for profitability. While years with fewer natural disasters have supported earnings, S&P points to the increasing frequency of extreme weather events—such as floods, wildfires, and hailstorms—as reducing that potential upside.
Still, the agency does not anticipate that recent large-scale catastrophe events, such as the 2024 floods across parts of Europe, will materially affect profitability for the region’s property and casualty insurers.
S&P also highlights a changing regulatory environment as a key consideration for European insurers in the second half of 2025. Insurers are adjusting to new compliance requirements under the Financial Data Access Regulation, the Digital Operational Resilience Act (DORA), and updated Solvency II measures.
Additional demands stem from new sustainability disclosure obligations under the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards. For internationally active insurance groups, the transition to the Insurance Capital Standard adds another layer of complexity.
Cybersecurity also remains a prominent concern, with S&P noting an uptick in cyberattack attempts since the onset of the Russia-Ukraine conflict.
Although there have been no successful breaches among the rated entities that led to reputational damage, the agency warns that the growing reliance on third-party service providers introduces additional risk. DORA is intended to mitigate this vulnerability, but it also contributes to the increasing operational load for insurers.
Despite persistent geopolitical risks, S&P Global Ratings expects European insurers to maintain operating performance consistent with the first half of the year.
Long-term structural risks related to climate change and the transition to net-zero are expected to persist, but S&P views these risks as manageable. According to the agency, insurers are typically able to adjust premium rates periodically, which can help mitigate the financial impact of such developments.
Macroeconomic forecasts included in the report project 2025 GDP growth of 0.8% in the eurozone and 0.9% in the U.K., with consumer price inflation expected at 1.9% and 3.1%, respectively. S&P anticipates a slight reduction in long-term interest rates to around 6.5%, while unemployment across Europe is forecast to remain low, at 4.6%.
S&P’s analysts also reviewed country-specific dynamics across key insurance markets. In the UK, elevated interest rates have bolstered demand for annuities, particularly in the bulk and individual pension segments. S&P expects the UK non-life market to maintain profitability, although retail and commercial segments will face diverging pressures due to claims inflation and softening reinsurance rates.
Germany’s life insurers are reducing product risk through lower guarantees and improved asset-liability matching, while its P&C sector is expected to remain profitable despite increased catastrophe losses and reinsurance costs. S&P anticipates a 5%-6% rise in gross premiums and an improving combined ratio.
In France, the outlook revision on the sovereign rating has impacted insurers rated at ‘AA-‘ or higher, but S&P sees the life insurance sector benefiting from capital buffers, favourable tax treatment, and steady demand.
In contrast, motor lines continue to struggle with profitability due to high claims and competition. Spanish life insurers face muted growth potential due to limited fiscal incentives, though surrender risks are low. Spanish P&C insurers are faring better, with premium growth expected at 5% and a combined ratio near 93%, thanks to disciplined underwriting and regulatory support.
Italy’s life market is being driven by strong growth in unit-linked policies, while P&C insurers benefit from both legislative changes and a shift toward non-motor lines.
S&P expects this market to remain profitable, especially as new catastrophe insurance requirements come into effect later in the year.
In the Netherlands, product risk and competition from banks continue to challenge life insurers. S&P forecasts flat growth for this segment but sees steady development and increasing consolidation in the P&C market, which supports profitability.
In the Nordic countries, life insurers have focused on moving away from guaranteed products toward capital-efficient ones. While this helps manage investment risk, S&P notes that the sector remains sensitive to market volatility due to high allocations to equities. P&C insurers in the region are expected to maintain strong underwriting results and capital positions, despite rising claims frequency and cost pressures.
Swiss insurers are similarly adjusting product strategies. S&P notes that life insurers in Switzerland are increasingly emphasising semi-autonomous offerings, which are less sensitive to interest rate fluctuations. P&C insurers are benefiting from pricing adjustments and strong loss prevention frameworks, even as natural catastrophe risks intensify. Premium growth in both life and non-life sectors is forecast to outpace GDP growth.
Throughout the report, S&P Global Ratings underscores the resilience of European re/insurers, highlighting several upgrades recorded in 2025, including those of Convex, Triglav, Sava Re, Allianz SpA, and Talanx.
Conversely, only one downgrade occurred this year, involving Novis, due to ongoing credit weaknesses and lapse sensitivity. Most insurers maintain financial strength ratings in the ‘A’ category, supported by strong solvency ratios and favourable refinancing conditions.
S&P Global Ratings concludes that, despite external pressures—from macroeconomic uncertainty to climate and geopolitical risks—European insurers remain well-equipped to manage their exposures.
The sector’s overall credit quality is underpinned by prudent capital management, adaptive product strategies, and stable regulatory oversight.
The post European insurers positioned for strong year-end, according to S&P appeared first on ReinsuranceNe.ws.