While the global outlook for the non-life insurance sector remains neutral, this classification belies the significant challenges faced by many developed markets as they feel the impacts of inflationary pressures, according to Fitch Ratings.
The rating agency noted that these impacts will vary considerably by region and market, and even by individual company as non-life insurers seek to mitigate inflation via repricing and investment earnings.
In general, higher interest rates are positive for life insurers’ investment yields, although any reduction in market values of fixed-income assets reduces capital and non-technical earnings in certain accounting regimes, and credit costs will typically increase
However, non-life lines face greater challenges in the evolving macro environment, as premiums may not grow sufficiently to compensate for inflationary cost pressures, and normalising claims frequency will put further pressure on earnings.
“Life insurers will benefit from higher investment yields, albeit with a rise in credit costs,” explained Keith Buckley, Global Head of Insurance at Fitch. “Some developed market non-life insurers’ underwriting margins will be pressured by inflation and normalising claims.”
Singling out non-life sub-sectors that could face deteriorations in their outlooks, Fitch highlighted French insurance, where higher inflation, or above-average natural catastrophe losses, could exacerbate pressures on non-life margins and reserves.
Also, for UK non-life company insurance, analysts observed that motor insurance pricing is lagging behind repair costs, while household premium rates have fallen due to new regulatory pricing practices.
Likewise, in US mortgage, new business is slowing and uncertainty in loss trends, although reinsurance availability could limit volatility and provide capital support.
Fitch also flagged the non-life sector in Chile, where adverse movements in inflation and exchange rates could affect the costs faced in the property and auto lines. Here, continued high interest rates could also lower economic growth, affecting property, engineering, and guarantee and credit lines.
