Fitch’s midyear global insurance outlook is neutral

Fitch Ratings said its midyear global insurance outlook is neutral as insurers remain resilient amid elevated rates and inflation.

Life insurers continue to benefit from higher interest rates and improving margins while lapse risk recedes and new growth opportunities arise in some markets. U.K. life insurers are benefitting from growing pension risk transfers while flows improve in continental Europe and sales should continue to be strong in the US. These factors are supportive of performance despite persisting investment and credit downside risks.

The challenges faced by non-life insurers continue to ease as premiums have risen to compensate for inflationary cost pressures. Some jurisdictions been particularly successful in repricing and strengthening margins as Germany’s outlook has moved to ‘improving’ alongside Italy and the U.K. In other markets, competition and other factors may limit ability to increase prices further, leading to neutral outlooks following a tough 2023. Fitch Ratings expects a recovery in performance in U.S. personal auto lines, one of the hardest-hit sub-sectors.

Global reinsurance, U.K. Company, and London Market outlooks remain improving. Favorable
pricing conditions support strong underwriting margins and returns on capital for 2024. Pricing
trends have started to moderate, but signs of new capacity entering the market that substantively
change competitive dynamics are limited.

Cumulative effects of large rate increases combined with a tempering of claims severity trends led to the U.S. personal lines sector moving to improving. U.S. commercial lines remain neutral, but underwriting profits and reserve adequacy in liability segments face growing concern from rising litigation activity that includes higher settlement costs and more frequent nuclear verdicts. U.S. mortgage and U.S. title remain ‘neutral’ as claim trends have remained stable and carriers  have adapted to recent declines in market activity.

What to watch:

• Market volatility if financial conditions tighten could depress asset values and affect market
access and refinancing costs, offsetting the benefit of higher investment yields.
• An even-higher-for-even-longer rate environment that increases asset risks, including
commercial real estate and alternative assets where allocations have increased in recent years.
• Changes in new business and surrenders for life companies from higher interest rates.
Deterioration in management of asset-liability, liquidity risks and capital buffers.
• Higher reinsurance costs and retention levels, which may increase catastrophe losses and
earnings volatility for primary insurers.
• Ability of non-life insurers to maintain pricing above loss trends in the face of competitive and
regulatory pressures, and as policyholder buying practices adjust to price rises.