Low interest rates and "significant" coronavirus-induced volatility in financial markets are the main risks facing European, Middle Eastern and African insurers over the next 12-18 months, according to Moody's.
"Recent significant financial market fluctuation driven by the coronavirus outbreak will erode insurers' capital in the short term," Helena Kingsley-Tomkins, an analyst at Moody's, said.
She added: "Low interest rates, with bond yields dropping to record lows in March, will further pressure European insurers' profitability and economic solvency over the coming quarters."
The most vulnerable insurers are those with a high dependence on savings policies that offer high guaranteed returns.
In the short term, insurers may turn to cash, as macroeconomic uncertainty increases investment risks, including the threat of a rise in European corporate default rates, according to the analysis. Higher default rates would affect insurers' solvency ratios.
That being said, the industry has the capacity to absorb moderate shocks, Moody's also highlighted.
In the long term, the ratings agency expects migration toward lower-quality assets, as well as moderate growth in illiquid assets in insurers' investment portfolios, as firms seek to boost returns by investing in riskier assets.