In Fitch Ratings’ global insurance mid-year outlook, Cynthia Chan, Global Head of Insurance, suggested there are more headwinds for non-life insurers where inflation and normalising claims pressure underwriting margins in some key markets.
According to the rating agency, the global insurance outlook remains neutral with a continued skew towards deteriorating in several key developed market non-life insurance sectors despite improved credit drivers for Global Reinsurance and the UK London Market.
Fitch stated that non-life lines face greater challenges as “premiums may not grow sufficiently to compensate for inflationary cost pressures, and normalising claims frequency will put further pressure on earnings.”
Cynthia Chan, Global Head of Insurance, noted, “We maintain a ‘neutral’ global sector outlook. There are more headwinds for non-life insurers where inflation and normalising claims pressure underwriting margins in some key markets.
“Higher investment yields are supportive of life insurer earnings, although with a rise in credit costs and surrender risk.
“Global Reinsurers and the UK London Market benefit from strong pricing and investment yields balanced by rising claims inflation and financial market volatility.”
The extent to which non-life insurers can reprice to mitigate some inflation pressures is a key ‘What to Watch’, said Fitch.
The rating agency suggested that Global Reinsurance and the UK London Market have seen improved underwriting margins and higher yields on investment portfolios, however, claims inflation is still high and financial market volatility may increase again leading to investment losses.
Meanwhile, Fitch also highlighted that higher interest rates raise life insurers’ investment yields, although any reduction in market values of fixed-income assets reduces capital and non-technical earnings in some accounting regimes, and credit costs will typically increase.
“The sharp rise in rates and the March bank turmoil also heighten surrender pressures, although strong liquidity profiles keep almost all life markets on neutral,” the rating agency concluded.
