Analysts at Bank of America Securities believe that the fundamentals for non-life insurers remain attractive going into 2022, and predict that the sector is on track to deliver its best returns on equity (ROEs) in over a decade.
Overall, analysts expect to see continued positive pricing dynamics in commercial non-life next year, with reinsurance expected to earn-through into improving combined ratios and attractive ROEs.
In reinsurance, the pricing outlook was seen to firm noticeably in Q3 following significant industry losses from the European floods and Hurricane Ida.
Bank of America Securities believe investor and management focus on the adequacy of nat cat pricing is likely to see some re-underwriting efforts, with particular focus on frequency/aggregate covers.
COVID losses are also likely to feature at renewals, although incurred but not reported reserves remain high, given pending court cases and ongoing coverage discussions between cedants and reinsurers.
Analysts forecast reinsurance rate rises of 1.5% in 2022, broadly in line with increases reported in 2021, but are more cautious about the outlook beyond 2022, with rate increases likely to be in-line with claims inflation by 2023.
While reinsurers have experienced large losses in recent years, Bank of America Securities attributes their performance more to poor underwriting discipline over the soft cycle, which it says can be addressed through re-underwriting and repricing.
In commercial lines, renewal rates are expected to remain positive, albeit likely at lower levels than in 2020 and 2021.
Additionally, rate increases in both commercial and reinsurance are anticipated to remain well ahead of claims inflation.
As a result, the growth outlook for European non-life in particular outlook remains compelling, driven by a normalisation of large losses and continued momentum in rates.
Analysts therefore conclude that strong underwriting improvements should more than offset investment income headwinds in the coming years, and should lead to margin expansion and the best non-life ROEs in over a decade of around 12% over 2022-23, assuming normalised large loss activity.