Analysts at Willis Re have observed an improvement in underlying profitability among global re/insurers in the first quarter of 2021, as rate increases for both reinsurance and commercial insurance lines of business continued to outstrip claims inflation.
Claims inflation has been flagged as one of the key challenges facing the re/insurance industry in the near-term by many analysts recently.
But Willis Re, the reinsurance broking division of Willis Towers Watson, has reported that inflation trends have not changed significantly so far this year, and noted that the gap between headline rate increases and loss cost inflation “remains significant.”
These comments on inflation formed part of Willis Re’s recent ‘Global (re)insurance’ report, which led on the theme that Q1 trends were generally favourable, driven by positive pricing momentum.
The report, which tracked 17 of the largest re/insurers with commercial lines or reinsurance operations, found that most firm achieved meaningful premium growth in Q1 2021, with rate momentum in reinsurance and commercial lines trumping any residual COVID-19 volume pressure.
But while a number of (re)insurers reported improved ex-cat accident year combined ratios, due to favourable pricing conditions, the Texas winter storm dented several headline combined ratios.
Although there was some slowing in rate for certain lines of business and geographies over the first three months of this year, management teams remain confident that reinsurance and commercial insurance pricing would remain favourable for the remainder of 2021 and into 2022.
Possibly the most telling take-away from the Q1 results season, according to Willis Re, is that consensus earnings estimates nudged up slightly, with rate momentum, premium growth and the investment yield outlook all contributing to the slightly more positive outlook.
Consensus 2022 earnings estimates increased by an average of 1%, as the US and ‘Rest of World’ region saw consistent small increases.
However, it was more of a mixed bag for the Europeans and reinsurers, with currency headwinds dampening forecasts for companies in these categories.
With this in mind, Willis Re did not feel that management should be overly cautious about the issue of claims inflation, which it said was further eased by low claim frequency due to COVID for those companies with meaningful personal lines activities, and by the buffer of historically conservative reserving approaches.
And while inflation should certainly be considered a threat to the non-life business model, analysts also noted that a material uptick in inflation should also be accompanied by a normalisation in interest rates.