JP Morgan has offered its thoughts on the feedback received from its 9th European Insurance Conference.
Among the areas that the financial giant commented on were commercial P&C (re)insurance pricing; losses related to Russia and Ukraine, plus other large losses; an update on Covid-19 reserves and related IBNR; and interest rates and market movements.
The firm reported that it had observed generally high levels of comfort in relation to capital, with companies at the conference saying that there was nothing to fear from market movements so far in 2022. It said that equity market holdings in the sector remain very low, and most companies continue to maintain asset duration that is slightly lower than liability duration, resulting in a positive sensitivity to interest rates. Most companies believe that their Solvency II ratios have, at a ‘net’ level, benefitted from market movements since 1Q22, with higher interest rates more than offsetting the impact of wider corporate credit spreads and inflation.
Around inflation, JP Morgan said that EIOPA held the view that inflation was of a low risk for life insurers with mostly nominal or fixed liabilities, and a manageable risk for non-life insurers from the data it had seen.
Commercial reinsurance pricing for the P&C lines are still constructive to margins, said JP Morgan.
It added: “The commentary on commercial P&C pricing remained constructive. Reinsurers are seeing strong momentum, with capacity to write catastrophe reinsurance limited by climate related concerns likely to help prices during mid-year renewals. Beyond the mid-year, it seems that reinsurers will continue to hold back on taking on risk where they perceive they are not be adequately compensated in current pricing; aggregate covers, for example, seem to be limited in supply.”
It went on: “On the primary commercial P&C side, price increases have slowed but are expected to continue in the near-term, according to Zurich’s CFO. Inflation, plus the general risk backdrop remain supportive factors in pricing. In personal lines, UK motor prices appear to be running below the levels needed to address both claims inflation and the impact of the general insurance pricing practices review.”
Russia’s invasion of Ukraine has produced limited claims so far, said the firm, with few claims being notified to data. However, it said that the largest uncertainty was around aviation leasing.
It wrote that this, however, would probably take many years to resolve.
It added: “With few additional notifications and limited new information on aviation leasing issues, our base case scenario that 2Q22 could be a peak for Russia/Ukraine losses could prove to be wrong. On the positive side, 2Q22 so far appears to have been a very benign quarter for catastrophe losses when compared to 1Q22 and to historical levels. This could potentially be an offset to a heavy nat cat quarter in 1Q22 plus Russia/Ukraine.”
Around Covid-19 reserves, it said it was too early to judge the level of conservatism.
It said: “We have previously noted the still high level of IBNR in COVID-19 related claims reserves. In our discussions with European insurers at our conference, it was suggested that there could be more clarity on claims outcomes in 2023 with uncertainty of debates related to business interruption in Germany and Australia potentially resolved by then. This may lead to IBNR being released if initial claims estimates end up being overly conservative, but insurers were not willing to comment further on this at the current time.”
