As price momentum vs claims inflation remains the key focus at 9M22 results, Goldman Sachs analysts have suggested that pricing is currently above claims inflation, which should lead to profitability recovery of the insurance industry in 2023.
In the case of commercial P&C Lines, price momentum has continued to address claims inflation, which should also benefit (relatively higher) commercial P&C-focused names AXA and Zurich, analysts noted.
“Hurricane Ian losses were higher than our estimates for AXA (actual €0.4bn vs GSe: €0.3bn) and Zurich (actual $0.55bn vs GSe: $0.4bn). Whilst AXA and Zurich have highlighted continued Nat-Cat exposure reduction to support underwriting profitability and stability, this should help prolong the price momentum in property lines in our view.” the firm noted.
According to analysts, focus at 9M22 results was more on retail P&C lines, where claims inflationary pressure tends to be higher. Goldman Sachs said:
“All four composites have indicated a stronger price momentum during Q3 which should continue in Q4 (including UK for AXA and Allianz), with Germany flagged as a region likely to see stronger price increases in Q4 and into 2023.
“Nonetheless, Allianz and Generali (two retail-focused composites) indicated a likely higher COR vs original guidance at the 2021 CMD stage if claims inflation persists, though this would likely be more than offset by higher investment incomes while maintaining underwriting discipline. Overall, along with the ongoing frequency benefits, indexation clauses and prudent reserving, we believe 9M22 results show claims inflation is well-manageable.”
Analysts also noted that another example of the improving retail picture is the UK Motor lines. Allianz commented that whilst their UK COR was 99%, they believed the market was
hardening substantially, and management expected 2023 COR to likely improve by c.300bps.
Goldman Sachs said: “The UK motor market was the retail market with the most pressure in 2022, owing to a combination of claims inflation (particularly second-hand car pricing) and the FCA reforms at the start of 2022 which reduced average premiums.
“However, as we discussed in our note, pricing has started to increase and Allianz’s comments add further credence to the pricing data. More importantly, it suggests pricing is above claims inflation and industry profitability should recover in 2023, supporting our thesis on Direct Line, as a read-across. The UK is an extreme example of the retail market catching up with claims inflation and pricing starting to come through earnings in 2023 for the whole sector.”
