Analysts at Fitch Ratings have explained that their neutral sector mid-year outlooks for a vast majority of insurance sectors and regions reflect steady fundamentals across most markets despite the broadly challenging economic climate.
In particular, Fitch expects non-life claims to continue to normalise after pandemic pressures, although costs are now rising with inflation, which is proving to be higher and more persistent than previous expectations.
But it believes that non-life insurers could mitigate some inflation pressures via a combination of repricing and investment earnings as interest rates rise.
And on the life side, the global tightening in monetary policies and higher interest rates is expected release some of the long-standing pressure on life insurer earnings and spreads, despite related declines in fixed-income investment market values, and greater financial market volatility in general.
Looking at reinsurance specifically, analysts warns that risks from rising claims inflation, financial market volatility and higher natural catastrophe claims are rising due to high economic inflation, partially exacerbated by the war in Ukraine, monetary tightening of central banks and climate change.
However, they also assured that capitalisation is very strong and should continue to improve, paving the way for capital repatriation, while rising interest rates will be positive for investment income, and underwriting remains disciplined, supporting margins through substantial premium rate increases.
Similarly, in the London Market, Fitch sees challenges from accelerated claims inflation, weakening pricing momentum and increased financial-market volatility.
Here, it believes premium rates will reflect some inflation expectations, but the magnitude of pricing improvement will likely be lower than in 2021.
The rating agency does not expect a significant deterioration in capitalisation, which remains very strong in the London Market, and it further points to the Lloyd’s performance management efforts, which are forecast to continue having positive impact on the market’s underwriting results.
