European commercial insurers’ profitability surge to stall - Fitch

Sector to see competitive pressures and a cooler market

European commercial insurers’ profitability surge to stall - Fitch

Insurance News

By Mika Pangilinan

Profit margins for Europe’s major commercial insurers are set to reach their peak in 2024 before encountering a downturn, according to new analysis by Fitch Ratings.

The report by Fitch pointed to momentum in pricing that has shown a marked deceleration throughout 2023, with little expectation of outpacing the rate of claims inflation in the following year.

European commercial insurers have been grappling with elevated underwriting losses caused by a combination of factors, including significant claims inflation, inadequate reserves, and the impact of the global pandemic.

Responding to these hurdles, insurers implemented price hikes across the industry for an unprecedented 25 consecutive quarters, which led to a notable recovery and robust profitability starting from 2021. In the past year, the sector saw underwriting margins improve, complemented by a supportive increase in investment income.

Fitch said this recent uptrend in profitability will likely invite new entrants and lead to heightened competition. As such, the pace of price increases is expected to dampen further, culminating in a softening of the market by 2025.

The analysis by Fitch also highlighted several persistent challenges confronting the sector, including the implications of social inflation, the evolving risks associated with climate change, and the burgeoning threat of cyber incidents.

“European commercial insurers have strongly improved the quality of their book by changing terms and conditions, in addition to the price increases,” Fitch said. “However, the sector will need continued vigilance as the risks are constantly evolving and structurally growing.”

In another report released earlier this month, Fitch offered insights into how reinsurers will be impacted by the recent collapse of the Francis Scott Key Bridge in Baltimore.

According to Fitch, losses reaching $2 billion to $4 billion are expected to be spread out across several carriers, with no expected impact on the ratings of major reinsurers like AXA XL (the lead underwriter of the reinsurance policy), Munich Re, Swiss Re, SCOR, Hannover Re, and Lloyd’s of London.

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