EMEA insurers’ capital surplus has largely recovered, and now stands at 92% of its pre-pandemic level, according to new data from S&P Global Ratings.
Analysts expect the non-life insurance sector in the EMEA region to maintain solid insurance margins going forward, despite competition picking up in motor lines.
For property and casualty insurers specifically, S&P notes that companies in many EMEA markets have also displayed solid technical margins alongside low and negative interest rates.
After pandemic lockdowns caused windfall profits because of lower claims frequency, competition in this sector has now started to increase, and claims frequency is normalizing.
S&P expects the recent spike in inflation to be a short-term blip that will not alter claims costs beyond 2021, although Germany will likely face a record high natural catastrophe burden after the floods in 2021.
All in all, for 2022, analysts expect P&C insurers to maintain robust margins or see only a slight decrease.
For life insurers, low and negative interest rates remain a challenge for companies in some EMEA, but, for many margins are expected to bottom out in many major life markets.
“In many cases, the quality of capital remained high, with hard capital providing a solid base and hybrid capital limits underused,” S&P stated. “However, the re-emergence of other uses of capital, such as progressive dividends, share buybacks, and mergers and acquisitions (M&A), suggests that capital adequacy will remain at about the current level.”
“EMEA insurers are well prepared for the current and upcoming challenges,” the rating agency concluded. “In 2021, upgrades outpaced downgrades, and we saw limited downside risk. That said, we do not expect this trend to continue into 2022.”
