ReCent Actuarial News
Credit risk in a changing market
August 2026
Image:Gorodenkoff - stock.adobe.com
Recent years have highlighted how quickly market conditions can change and how interconnected risks have become across life insurers' balance sheets. Credit risk in life insurance is becoming a broader strategic consideration, extending beyond solvency ratio alone to include liquidity, policyholder behaviour, asset strategy and financial flexibility.
In this article, Luke Spiers, Head of Financial Solutions, and Eoin Collins, Business Development Actuary at Hannover Re UK Life Branch, explore how credit risk is evolving and the implications for insurers navigating today's economic and regulatory environment. Drawing on industry discussions and Hannover Re's own experience, they examine the role reinsurance can play in supporting balance sheet resilience.
After a prolonged period of low interest rates, higher yields have been welcomed by many insurers. At the same time, higher yields have contributed to and forms part of a more complex and fast-changing risk landscape. Rising rates affects technical provisions, asset values, lapse behaviours, mix of risks, product pricing, liquidity needs and solvency positions.
Using the UK as an example, long-dated gilt yields have risen materially since 2022 due to changing inflation expectations and concerns about fiscal prudence, creating both opportunities and challenges for life insurers.
Figure: Average Daily Conventional 30-Year Gilt Yields, over the last 5 years [1]
For reinsurers, it is important to continue developing a deeper understanding of these evolving and dynamic risks in order to support insurers with practical and effective solutions. As part of this, Hannover Re experts recently participated in a Fitch Learning workshop focused on credit risk and the life insurance sector. Building on the themes explored during the workshop, this article shares Hannover Re’s own insights and reflections on the key considerations for insurers and reinsurers navigating an evolving credit risk environment.
Credit risk insights
A key observation from the discussion was that credit risk cannot be assessed through a single metric in isolation. Solvency ratios and credit ratings remain important, but they do not always capture the full picture. Liquidity, business model resilience, product mix, policyholder behaviour, governance and access to financial flexibility can all become critical under stress.
Historical examples from the European and US life insurance markets demonstrate how quickly changing market conditions can expose vulnerabilities. While rising rates may be the catalyst, especially following a period of ultra-low rates when asset liability matching was perhaps geared, the wider challenge is often the interaction between lapse risk, liquidity pressures, business model resilience and the ability to respond effectively.
Private credit is a good example of why credit risk assessment needs to look beyond headline yield or solvency capital treatment. While it can play a valuable role in enhancing investment returns and supporting asset-liability matching, it may also introduce additional considerations around valuation uncertainty, liquidity, transparency, concentration risk and governance. For insurers and reinsurers, the key question is not simply whether an asset class is attractive, but whether the associated risks are well understood, appropriately managed and resilient under stress
Discussions around early signs of distress and due diligence priorities highlighted several key areas of focus:
- The growing role of private credit and the need to balance valuation and complexity risks with investment return and asset-liability matching
- The role of reinsurance in supporting resilience while maintaining alignment of interests, particularly as balance sheets become more complex and insurers seek to balance multiple objectives
- The question of what represents a “normal” solvency ratio in a more volatile environment and changing shareholder expectations
- The impact that deteriorating biometric or lapse experience can have on profitability, liquidity, capital consumption and financial flexibility
The workshop provided a valuable opportunity to explore evolving credit risk considerations and exchange perspectives with Hannover Re experts from around the world and external credit risk specialists.
The role of reinsurance
For insurers, the key point is that credit risk is increasingly connected to broader balance sheet management. It influences target solvency buffers, stressed liquidity requirements, earnings volatility and long-term resilience.
This is where reinsurance can play an important role. By working with a partner that understands both the market environment and the regulatory framework, insurers can explore solutions that help manage volatility, support liquidity needs and strengthen balance sheet resilience.
As the macroeconomic and regulatory landscape continues to evolve, effective risk and capital management will remain central to protecting policyholders and supporting a sustainable insurance market.
At Hannover Re, understanding how these risks continue to evolve remains an important part of supporting clients in managing volatility, strengthening liquidity positions and enhancing financial resilience.
Authors
Luke Spiers Head of Financial Solutions, UK & Nordics Hannover Re UK Life Branch
Eoin Collins Business Development Actuary Hannover Re UK Life Branch
References
- UK Debt Management Office (UKDMO). Accessed on 9 July 2026 under https://www.dmo.gov.uk/data/ExportReport?reportCode=D4H
If you need further information or would like to send us feedback, please feel free to get in touch.
The information provided in this document does in no way whatsoever constitute legal, accounting, tax or other professional advice. While Hannover Rück SE has endeavoured to include in this document information it believes to be reliable, complete and up-to-date, the company does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such information. Therefore, in no case whatsoever will Hannover Rück SE and its affiliated companies or directors, officers or employees be liable to anyone for any decision made or action taken in conjunction with the information in this document or for any related damages.
Hannover Re is the registered service mark of Hannover Rück SE.
Hannover Rück SE © 2024