Analysts at Bloomberg Intelligence have cited inflation, high costs, and premium rates needing to rise as three key themes for the European property and casualty (P&C) sector in 2024.
Claims inflation has characterized 2023 trading, and analysts expect it to be a feature of 2024, with insurers challenged to increase rates enough to fully offset rising expenses.
“Upwards pressure on claims paid and costs driven by inflation means it is imperative that insurers continue to push premium rates up in 2024, in BI’s view. Margins are likely to remain under pressure as claims inflation always lingers longer than anyone expects,” explain analysts.
For the most part, claims costs are still rising faster than premiums, with Bloomberg highlighting the fact that UK auto CPI maintenance and repair is up 8% in the year to June.
While analysts feel that the introduction of IFRS 17 accounting has the potential to sharpen investor focus on book value and the return on it, they note that uncertainty caused by the new accounting rules hasn’t dampened sentiment so far in 2024.
Kevin Ryan, Senior Insurance Industry Analyst at Bloomberg Intelligence, commented, “European P&C Insurers’ concerns about crimped margins in 2023 as inflation and interest rates rise, combined with the continued war in Ukraine, didn’t lead share-price returns to slow significantly.
“Premium rate increases in many cases appear to be keeping up with inflation. It’s important the premium increases are maintained throughout 2024 to protect margins, which remain thin.”
The share prices of BI’s European P&C insurer peer group rose 11.4% in Euros terms year-to-date through June 28th, outperforming the Stoxx Europe 600 Index’s 10.7% increase.
This maintained the recovery from March 2020’s lows, when shares plunged an average of 44% compared to the start of the year, a trend that has steadily reversed, notes Bloomberg.
Analysts also note that European P&C shares have moved up in 2024, outperforming the broader market. The group outperformed the benchmark by 6.8 percentage points.
“European P&C insurers’ price returns have been supported by robust business models in 2024, underpinned by strong capital bases. Recognition of that underlying strength doesn’t appear to be giving way to concerns about economic stability, inflation and war in Europe.
“The demonstrable ability of insurers to run their businesses with staff working from home during Covid-19 helped performance in 2021, and the organizational strength this demonstrated has helped performance in 2022, 2023 with momentum continuing in 2024,” added Ryan.
