French non-life insurers and reinsurers face natural catastrophe losses on an unprecedented scale this year, exacerbating the pressure on profitability from claims inflation and a worsening macro-economic environment, according to Fitch Ratings.
Analysts assured that ratings are not at risk but said that the sector’s financial performance is expected to deteriorate noticeably in 2022 and 2023.
Fitch notes that losses due to frost, storms, drought and wildfires are already set to make 2022 one of the costliest years on record for French non-life insurers.
The storms that struck several parts of France between May and early July caused total losses estimated at about €3.9 billion, according to France Assureurs, and the wildfires in July and August burned eight times more land than in a typical year.
Furthermore, weather-related claims amounted to €4.3 billion in January-July 2022, according to France Assureurs, already more than the annual average of €3.5 billion over 2017-2021.
As a result, Fitch believes that natural catastrophe and weather claims are likely to significantly exceed insurers’ annual budgets in 2022, even after reimbursements under France’s natural disaster compensation scheme from Caisse Centrale de Reassurance, the public reinsurer.
This will likely weaken the underwriting profitability of French re/insurers, and this situation could deteriorate further as weather-related losses become more frequent and severe due to climate change.
In the coming years, therefore, Fitch expects French insurers to substantially increase premiums for property-catastrophe and agriculture insurance, and reduce their exposure to climate-related risks.
In the near term, however, it’s unlikely that insurers will be able to raise premium rates fast enough to keep pace with rising claims costs, particularly if inflation stays high and if the government continues putting pressure on insurers to offer rebates to consumers.
Additionally, Fitch notes that French non-life insurers will face higher reserving requirements at least into 2023 due to higher-than-anticipated claims inflation. However, Fitch expects the reserve increases to be a drag on earnings rather than to deplete capital given the sector’s historically prudent approach to setting reserves.
