Global 2024 P/C outlook negative as inflation, catastrophes constrain profits

Moody's Investors Service reported its outlook for the global property/casualty insurance sector remains negative based on continued weak underwriting results in personal lines, particularly in the U.S. and Europe. Also, primary insurers are retaining a higher proportion of their catastrophe risk given a hard reinsurance market. Commercial lines are performing well based on cumulative rate increases achieved over the past several years. Higher market interest rates are boosting P/C
insurers' investment income in the U.S. and Europe and to a lesser extent in Asia Pacific.

• Global economic growth slowing in 2024, differences by region. Moody's predicted global economic growth will slow as high interest rates percolate through credit channels to the real economy. Inflation will cool amid slowing demand as central banks maintain tight monetary policies.
• Inflation cooling but claim costs still a challenge for P/C insurers. Inflation has fallen from highs in the U.S. and Europe, but its impact on P/C insurance claims continues, given big increases in the costs of motor vehicle parts, building materials and labor in recent years, Moody's reported. Claims inflation is milder in China, Japan and Switzerland.
• Underwriting results slow to recover in personal lines, peaking in commercial lines. Moody's said the V-shaped COVID -19 recession and recovery led to a steep rise in accident frequencies and severities for motor insurers. Some top motor carriers have returned to target combined ratios through rate increases and better risk selection; some will take another year or two to reach their targets. Commercial insurers are benefiting from cumulative rate increases dating back to 2017-18, although heightened price competition could dampen their underwriting results in the year ahead.
• Catastrophe risk management a persistent challenge as primary insurers retain more risk. Insurers protect against the primary perils of hurricanes and earthquakes and secondary perils such as severe convective storms, wildfires and extreme precipitation. Primary insurers are retaining a growing share of their catastrophe risk, particularly with regard to secondary perils, as reinsurers raise attachment points and rates, Moody's said.
• Sound balance sheets, higher investment income support sector. Moody's reported a majority of P/C investments are in high-grade bonds and cash, with smaller proportions in equities, alternative investments and real estate. Insurers in the US and Europe are generating higher investment income given the rise in market interest rates. Portfolio yields will rise further in 2024 as new money yields exceed those on maturing bonds.