Rating Agency Suggests Insurance Price Momentum Peaked in 2021

Commercial insurance price increase momentum is slowing in 2022, according to Fitch Ratings, which, combined with rising risks of inflation, climate change, and cyber, will likely lead to major European insurers' profits to peak in 2023 and weaken in subsequent years.

The rating agency noted that large underwriting losses, extremely low interest rates, increasing natural catastrophe claims, and the COVID-19 pandemic have put pressure on the commercial insurance sector's earnings and led to global price increases for 17 consecutive quarters.

Fitch said that major European commercial insurers returned to strong profitability in 2021. Increasing competition and improved profitability slowed price increase momentum in most property-casualty lines of business during 2021. Cyber insurance was the lone exception, Fitch said, as ransomware attacks increased, leading to price increase the rating agency expects to continue in 2022.

Limited historical data on cyber risks and the line's systemic nature will limit the commercial insurers' risk appetites for writing cyber coverage, Fitch suggested.

Prolonged higher economic inflation makes claims trends less predictable and could lead to pressure on property insurance margins and reserve deficiencies in casualty lines, the rating agency said.

In addition, "Commercial insurers are heavily exposed to climate change through rises in the frequency and severity of natural catastrophe claims (physical risk), and as underwriters of and investors in corporates whose business models might suffer from climate protection laws (transition risk)," a Fitch statement said.