European commercial market to soften in 2025: Fitch

Fitch predicts that the commercial European insurance market will soften next year as competition among insurers mounts to the point where prices finally fall.

The rating agency thinks major European commercial insurers’ underwriting margins are likely to peak in 2024 and then weaken as rates begin to come down.

It notes that heavy underwriting losses caused by high claims inflation, insufficient reserving and the pandemic have led to global price increases for 25 consecutive quarters for European commercial insurance buyers.

“The market has corrected upward, with very strong sector profitability since 2021. In 2023, this was supported by high underwriting margins and increasingly supportive investment income,” says Fitch in a special report.

But it went on to stress that price momentum was “increasingly subdued” in 2023 and is unlikely to be above claims inflation this year.

Fitch expects improved profitability will increasingly attract additional capacity, leading to “more intense competition, which in turn will further slow price momentum, leading to a softening of the commercial insurance market in 2025”.

The report says that European commercial insurers have strongly improved the quality of their book by changing terms and conditions, in addition to the price increases.

However, it adds that the sector will need continued vigilance as the risks are constantly evolving and structurally growing.

“Risks related to social inflation, climate change and cyber remain key challenges for the sector,” says Fitch.