A tightening of market liquidity from central banks may present opportunities for insurers and reinsurers to move closer together, says a new article from Swiss Re.
The piece, written by Gianfranco Lot, head of globals reinsurance, says that a reduction in liquidity may allow insurers and reinsurers to deepen ties by shoring up balance sheets, seeking rating and solvency capital relief, and tapping fresh capital.
Lot wrote that the firm expected positive developments.
He added: “For instance, rising interest rates should result in increased solvency for all insurers. On Life & Health solvency, higher interest rates are seen outweighing falling equities prices, meaning a likely positive impact for L&H insurers. This, accompanied by waning COVID-19 mortality since the first quarter of 2022, should give life insurers a boost.”
He went on: “While we do see headwinds to P&C profitability this year, there are also prospects for a lift from further rate hardening in 2023 on the insurance and reinsurance side. In general, we still see heightened risk awareness driving insurance premium growth in 2022 and 2023.”
The piece’s wider subject was that of stagflation brought about by the war between Russia and Ukraine, alongside the aftermath of the coronavirus pandemic. Lot wrote that he and Swiss Re foresee a swifter exit from the current rising prices and slow growth than that of half a century ago. However, he says that the economic turbulence is still significant.
He wrote: “As product costs across supply chains soar, we should prepare for rising claims, from motor vehicles and property to construction or liability coverages. This could erode insurers’ profitability – and comes atop social inflation driven by the booming third-party litigation funding. Skyrocketing inflation can result in the need to increase reserves.”
He added: “Premium hikes to reflect rising prices can help. But while re-pricing of risks may be critical to reflect inflation-driven claims costs, we at Swiss Re are also actively working with clients to share our insights and forecasts, and help them strengthen their risk-management practices to avoid claims in the first place.”
