The global insurance industry is currently experiencing a “neutral” outlook, although several key non-life insurance sectors in developed markets show signs of deterioration, despite improved credit drivers for global reinsurance and the UK London market, according to Fitch Ratings. In light of Guatemala's sovereign upgrade and an expected moderation in sector growth, Fitch Ratings has shifted its outlook for Guatemala to “neutral” from “improving.”
Non-life insurance lines face significant challenges as premium growth may not adequately compensate for inflationary cost pressures, and the normalisation of claims frequency will further strain earnings, Fitch reported.
“There are more headwinds for non-life insurers where inflation and normalising claims pressure underwriting margins in some key markets,” said Cynthia Chan, global head of insurance at Fitch. “Higher investment yields are supportive of life insurer earnings, although with a rise in 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 ability of non-life insurers to adjust pricing to mitigate inflation pressures will be a critical factor to monitor, according to the report. Global reinsurance and the UK London market have witnessed improved underwriting margins and higher investment portfolio yields. However, claims inflation remains high, and financial market volatility could potentially lead to investment losses.
Life insurers, on the other hand, benefit from higher interest rates, which increase investment yields. However, any decline in the market value of fixed-income assets can reduce capital and non-technical earnings under certain accounting regimes, and credit costs are likely to increase, according to Fitch. The recent surge in interest rates and the turmoil in the banking sector in March have also heightened surrender pressures. Nevertheless, strong liquidity profiles have kept most life markets in a “neutral” position.
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Here are some sub-sectors that merit close attention due to a deteriorating outlook:
As the insurance industry navigates these challenges, close monitoring of these sub-sectors will be essential for industry participants and investors.
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