Moody’s has announced its outlook remains negative for the global property & casualty (P&C) insurance sector, based on “continued weak underwriting results in personal lines, particularly in the US and Europe.”
Writing in a report on the matter, the rating agency noted that primary insurers are retaining a higher proportion of their catastrophe risk (given a hard reinsurance market), which is another key driver of its decision.
“Primary insurers are retaining a growing share of their catastrophe risk, particularly with regard to secondary perils, as reinsurers raise attachment points and rates,” Moody’s said.
It is no secret that these so-called “secondary perils” are having a massive impact on the industry this year. Analysts at JP Morgan said that such events have “dominated” 2023 so far in place of the more usual major events.
Turning back to Moody’s report, the rating agency said it anticipates that global economic growth will slow as high interest rates “percolate through credit channels to the real economy.”
“Inflation has fallen from highs in the US and Europe, but its impact on P&C insurance claims continues, given big increases in the costs of motor vehicle parts, building materials and labour in recent years,” the firm said.
It also observed that The V-shaped COVID recession and recovery led to a steep rise in accident frequencies and severities for motor insurers.
“Some top motor carriers have returned to target combined ratios through rate increases and better risk selection; some will take another year or two to reach their targets,” the rating agency stated.
Meanwhile, commercial insurers are said to be benefiting from cumulative rate increases dating back to 2017-18, although “heightened price competition could dampen their underwriting results in the year ahead.”
Closing the report Moody’s commented on the sector’s investment landscape, stating, “A majority of P&C investments are in high-grade bonds and cash, with smaller proportions in equities, alternative investments and real estate.
“Insurers in the US and Europe are generating higher investment income given the rise in market interest rates. Portfolio yields will rise further in 2024 as new money yields exceed those on maturing bonds.”
