Fitch cautious on European softening

Optimistic news of an overall market softening across European non-life insurance markets may be a little overstated according to Fitch Ratings that still expects conditions to remain firm in the UK, Germany and Italy throughout this year while France, Spain and Italy will remain steady.

Fitch said that based on its recent insurance sector outlooks across Europe, non-life insurance premium rates are showing different trends in different European markets.

It said that non-life insurers have been looking to increase prices to offset high claims inflation and reinsurance costs, but their ability to do so varies, depending on local market dynamics.

“At the start of the year, we expected non-life insurers in the UK and Italy to be able to push through the strongest price rises, with good prospects of a recovery in profitability due to price rises outpacing inflation,” said Fitch.

“This drove our ‘improving’ sector outlooks for the UK non-life company market, London insurance market and Italian non-life sector in 2024. Elsewhere in Europe, non-life sector outlooks were ‘neutral’ as we believed price rises were likely to be more constrained by competition or societal pressure,” added the ratings agency.

As a result of Fitch’s mid-year review, the German non-life sector is improving. Recent premium increases for motor and buildings insurance, the two main business lines, were well ahead of its expectations, significantly improving the prospects for profitability after a steep decline in 2023.

However, the full effects of higher prices, as well as easing inflation and higher fixed-income yields, will take time to feed through to German insurers’ reported profits and will not become clear until 2025, said the ratings agency.

“Even in the UK and Italy, where strong price increases began sooner, the full benefits will not be felt until 2025 as premium rates have continued to rise this year,” said Fitch.

The non-life sector outlooks in France, the Netherlands and Spain remain ‘neutral’ according to Fitch. It said that price rises are unlikely to be as strong as in the UK, Italy and Germany due to market competition and societal pressure – a feature of the French market in particular – and it will take longer for profitability to recover from the effect of high claims inflation.

“That said, we expect marginal improvements in underlying profitability this year, driven by a combination of modest price rises, easing claims inflation and higher fixed-income yields. We do not expect the heightened political uncertainty in France to have significant credit implications for the domestic insurance market,” concluded the insurer.