Global multiline insurers (GMIs) with diverse business operations and geographical presence, coupled with competitive advantages and robust capitalisation, are effectively managing challenging circumstances, S&P Global Ratings said in a report.
GMIs tend to reap greater advantages from favourable conditions and endure less hardship during difficult times as compared to other insurers, and their unique competitive advantages played a significant role in enabling them to weather the challenges of the previous year.
In 2022, Global Multiline Insurers (GMIs) successfully dealt with issues such as market volatility, geopolitical turmoil, and inflation, and they appear to be poised to handle similar challenges in the current year, said S&P Global Ratings credit analyst Marc-Philippe Juilliard.
“While ongoing inflation is likely to increase both the average cost of claims and general expenses, we believe that higher investment yields will support profitability,” Juilliard added. “At the same time, underwriting discipline in property/casualty (P/C), especially in commercial lines, will sustain robust operating performance in the non-life segment.”
The life insurance sector is being heavily impacted by financial market instability, particularly the swift fluctuations in interest rates. This is because it will require a significant amount of time for higher rates to translate into improved investment returns, the ratings agency noted.
All GMI that had P/C operations reported a combined ratio below 100%, indicating that they made an underwriting profit. Some even achieved ratios close to 90%. The commercial lines of business were particularly profitable when tariffs were advantageous and claims remained manageable. It was particularly evident among major players that concentrated on commercial lines, namely Chubb, AIG, Zurich, QBE, and AXA.
Although personal lines of business also yielded profits in most markets, they were less profitable compared to commercial lines, primarily due to the impact of claims inflation and natural disasters, as well as delays in implementing tariff increases. In the US, personal lines did not generate profits due to declining results in the personal auto sector.
“COVID-19 no longer had a meaningful impact on most players, with a few exceptions in APAC, after having distorted P/C players’ performance indicators in different ways in 2020 and 2021,” the report noted.
Although there is a possibility of some depreciation of illiquid assets, GMIs are likely to benefit from a more favourable investment environment since the duration of their fixed-income investments is generally shorter than the investments that back life-savings liabilities, the rating agency forecasts. “…the severity of recent natural catastrophes and the concomitant increase in the cost of reinsurance protection could undermine this positive trend.”
“Life-savings business will gradually benefit from higher interest rates, but we expect this to take time to materialize, and possibly affect the GMIs’ business mix in the near term,” it added.
“We expect a gradual increase in pressure on insurers’ fixed-charge coverage ratios when they refinance maturing instruments. This situation is not conducive to mergers and acquisitions, as the GMIs funded most of their recent transactions by issuing hybrid instruments, at least in part.”
