In Fitch Ratings’ global insurance mid-year outlook, Cynthia Chan, Global Head of Insurance, suggested that there are more headwinds for non-life insurers where inflation and normalization of claims pressure underwriting margins in some important markets.
According to the rating agency, the global insurance outlook remains stable NEUTRAL with a continuous skew to deteriorating in several key developed market non-life insurance sectors despite improved credit drivers for Global Reinsurance and the UK London Market.
Fitch stated that non-life lines face many challenges because “premiums may not grow enough to offset inflationary cost pressures, and the normalization of acquisition frequency will put additional pressure on profits.”
Cynthia Chan, Global Head of Insurance, said, “We maintain a ‘neutral’ view globally. There are more headwinds for non-life insurers where inflation and normalization of claims pressure underwriting margins in some key markets.
“Higher investment yields support life insurer earnings, even with increased credit costs and surrender risk.
“Global Reinsurers and the UK London Market benefit from strong pricing and investment yields balanced by rising claims inflation and financial market volatility.”
The extent to which non-life insurers can trade to mitigate some of the inflationary pressures is a key ‘What to Watch’, says Fitch.
The rating agency suggests that Global Reinsurance and the UK London Market have seen improved underwriting margins and higher yields on investment portfolios, however, admitting that inflation is still high and financial market volatility may increase again leading to loss of investment.
Meanwhile, Fitch also emphasized that higher interest rates are raising investment yields for life insurers, although any decline in market values of fixed-income assets will reduce capital and non-technical income in some accounting regimes, and the cost of credit usually increases.
“The sharp rise in rates and the banking crisis in March also raised surrender pressures, although strong liquidity profiles kept almost all life markets in neutral,” the termination agency.
