Inflation remains a key concern for European insurance CFOs, followed by a downbeat economic outlook and market volatility in 2023, according to Moody's annual survey of chief financial officers (CFOs) from 22 leading European insurers.

The survey found that insurers are also changing their investment plans and use of excess capital in response to rising rates and market volatility. While the agency's outlooks on P&C and life insurance are negative and stable respectively, respondents were more optimistic regarding their P&C operations.

According to the survey findings, persistent inflation is the key threat, with 73% of respondents placing it among their top three worries. "Most respondents said they expected inflationary pressure to ease over the next 6 to 12 months, with only 11% anticipating a period of sustained strong price growth", the report says. "CFOs were most concerned about price rises falling short of claims inflation in general liability lines but expected stronger pricing in specialty and commercial lines".

The survey also found that around two thirds of CFOs ranked low economic growth as their second most pressing concern, followed by market volatility. "Still, around 41% anticipate high single- or double-digit growth in their operating results. CFOs are optimistic that stronger investment results and new business growth, particularly in non-lifelines, will support their earnings" Moody's said.

The survey's third key finding is that insurers are adjusting their investment plans. This is due to higher rates and economic headwinds, which have reduced respondents' appetite for higher-risk investments. Most CFOs expect their exposure to these assets to remain stable. The agency said that compared with the previous survey, more respondents plan to reduce their real estate investments. At the same time, more insurers expect to increase their allocation to Baa-rated bonds while reducing their sub investment grade exposures.

The Moody's survey finally found that CFO's attention is turning to capital deployment, with half of respondents saying they plan to deploy excess capital in 2023 - up from 29% in Moody's previous survey, reflecting improved solvency as a result of rising rates. "CFOs' preference is to channel the surplus into new business or distribution capabilities, rather than M&A, and/or to return capital to investors. Respondents plan no debt issuance in excess of refinancing needs, reflecting higher rates and a big rise in leverage metrics in 2022", said Moody's.