In the ever-evolving landscape of European non-life insurance, Fitch Ratings predicts that the United Kingdom and Italy are poised to reap the greatest benefits from the anticipated surge in premium rates throughout 2024.
The non-life insurance sector across Europe is expected to enjoy the fruits of higher premiums, alleviated claims inflation, and improved fixed-income yields.
Fitch suggests that non-life insurers in the UK and Italy are well-positioned to capitalise on the trend, projecting that these markets will witness the most significant uptick in premium rates.
This positive outlook is attributed to the expected convergence of higher premiums, easing claims inflation, and better yields on fixed-income investments.
In the UK non-life company market, premium rates experienced substantial growth in 2023, and Fitch anticipates a continuation of this trend into 2024, particularly in the realm of household insurance.
However, regulatory scrutiny on fair value practices for customers may pose challenges for insurers in household and personal business lines, limiting their profit margins. Despite an expected tapering off of motor insurance price rises in 2024, profitability is anticipated to improve steadily throughout the year.
London’s insurance market, centered around Lloyd’s and specialising in large, complex corporate risks, is projected to see ongoing double-digit rate increases exceeding loss cost trends.
Fitch expects underwriting profitability to peak in 2024, solidifying the positive outlook for the London market.
In Italy, motor insurance tariffs are predicted to experience a substantial increase in 2024, bolstering underwriting profitability.
Non-motor business, especially in health insurance, is also expected to witness improved profitability, although household disposable income constraints may temper the extent of the enhancement.
Despite rising premium rates across Europe in response to escalating claims costs driven by high inflation, the competitive nature of European insurance markets and societal pressures, particularly evident in the French market, may constrain the ability of insurers to pass on higher costs to customers.
It is noteworthy that European insurers, in response to cutbacks in reinsurance coverage against medium-sized natural catastrophe risks since 2022, have become more exposed to weather-related losses, the report noted.
However, Fitch believes that insurers will adeptly adjust pricing strategies and manage exposures to mitigate potential negative impacts on profitability.
Nevertheless, the report highlights a potential risk for non-life insurers across Europe if disinflation stalls. Continued high inflation could exert pressure on margins in short-tail business lines and potentially exacerbate reserve deficiencies in long-tail lines, underscoring the need for vigilant risk management strategies across the industry.
