As per a new report from Moody’s, claims inflation and increased exposure to weather events are the “main credit risks” for European property & casualty (P&C) insurers in 2024.
According to Moody’s analysts, consumer price inflation is receding, but wage increases “will fuel a continued rise” in claims expenses. In turn, P&C insurers will reportedly need to “push through” further price increases to compensate.
Moody’s highlighted that this will be particularly challenging for motor insurers in fragmented and competitive markets, especially Germany and France.
Meanwhile, the rating agency’s analysts also noted that primary insurers did not buy additional protection against climatic events during the January 2024 reinsurance renewals, amid “mounting catastrophe losses globally” which made reinsurance protection significantly more expensive.
“This leaves them exposed to a repeat of 2023, when they absorbed most of an above-average weather-related claims bill in some countries,” the report explained.
At the same time, Moody’s highlighted that reinsurers have become reluctant to provide cover for frequent medium-sized events such as hail storms.
“We estimate that European insurers’ risk retention has risen by 10% on average for most catastrophe events, with retention rates rising fastest for low-frequency events,” Moody’s added.
Also in the report, the firm discussed insurers’ increasing risk in certain asset classes, stating, “Higher borrowing costs place a strain on corporates’ credit quality and liquidity, and higher rates have not yet been reflected in some real estate prices.
“As a result, we expect insurers to maintain conservative asset allocations and favour sovereign bond investments, although demand for illiquid assets remains high in the UK as the bulk annuity market remains buoyant.
“We also see insurers as well prepared to handle an increased risk of cyber attack, driven by digitalisation and the emergence of AI.”
