Berenberg’s recent speed dating event took the temperature of the insurers in attendance. Overall, they were positive about the outlook for the sector.
All participants acknowledged that the macroeconomic environment is challenging at present. However, the majority remained confident about the outlook for Q2 as well as the longer term.
Rising interest rates are fundamentally positive for the sector, while inflation at present remains manageable.
Property and casualty growth is dominated by commercial lines, which continue to show upward momentum.
Reinsurance and speciality lines continue to harden, with risk aversion and claims inflation serving to further add upward pressure to rates.
In retail P&C, the motor market remains the weakest link with the UK insurers in particular still feeling the effect of the implementation of the Financial Conduct Authority’s pricing practices review, which is hindering efforts to increase rates in line with claims inflation.
In life insurance, the top line is also remaining relatively robust with structural growth inherent in many markets such as the UK. Overall, insurance is generally a counter-cyclical sector and hence, even in a recessionary environment, should be well placed versus other sectors.
So far, price increases are mostly outstripping inflation except in motor insurance where dislocations in supply chains and rising second-hand car prices continue to pressure underwriting profitability.
However, for longer tail lines, most companies highlighted the strength of their reserves which will help them manage earnings over the shorter term.
As ever with insurance, there is no one-size-fits-all for interest rate impacts across P&Ls, balance sheets and solvency. Rising reinvestment rates are undoubtedly positive for the sector, especially for those insurers with the shortest duration investment portfolios, which may increasingly be able to invest at higher rates than the current running yields, which could lead to earnings upside.