Inflation driving higher-for-longer commercial rates: AM Best

Europe’s top ten property/casualty insurers are outperforming their smaller rivals and are better able to capitalise on the hard insurance market, AM Best told Commercial Risk. Speaking to Commercial Risk, Mathilde Jakobsen, senior director, analytics at AM Best, said the scale and diversification of Europe’s largest insurers has helped them manage recent volatility in natural catastrophes and push through rate increases. “The top ten are all large diversified global groups, and their diversification by both geography and product have benefited them both in terms of top line and technical profitability in 2022 and 2023. Their geographical diversification and large scale help them manage the increased natural catastrophe losses experienced over the past five years, as well as the higher cost of reinsurance that has followed,” explained Jakobsen. “The groups also benefit from strong brands and diversified distribution networks, which help them in achieving the required rate increases to compensate for the claims inflation trends currently experienced by the whole market,” she said. Gross written premium for the 30 largest insurance companies in Europe grew 11% year on year in 2022. However, the continent’s ten largest insurers – led by Allianz and AXA – collectively grew at a faster pace than their smaller peers. Europe’s top ten-ranked P&C insurance companies remained unchanged in 2022. Allianz, AXA, Lloyd’s, Chubb and Zurich maintained their dominance in the top five spots, with four of them reporting low-to-mid-teen average premium growth for the year. Only a substantial change in premiums or a large acquisition or divestiture would cause movement in the top ten, according to Jakobsen. “The last time we saw a change in the top ten was in 2019, when AXA jumped ahead of Lloyd’s. This was the result of AXA’s acquisition of XL Group, which completed in September 2018. In 2019, AXA’s GWP grew 36%, reflecting a full year’s premium from XL Group, compared with only a share in the 2018 numbers,” she said. Among the groups ranked 11 to 20, five companies moved positions: Vienna Insurance, Aéma, Unipol, Sampo, and Groupama Assurances Mutuelles. Lloyd’s insurer Beazley climbed four spots to 23rd place, reflecting 21% growth in premiums, namely cyber, marine, accident and political lines, which saw significant rate improvements for the second year in a row. AIG Europe returned to the ranking in 2022 in 28th position after previously dropping out of the top 30. The growth in p/c premiums overall in 2022 reflects inflation and premium rate increases, as well as M&A activity among some of the top 30 players, explained Jakobsen. “Economic inflation brought with it claims inflation, especially in motor and property in 2022, and this has continued in 2023. Insurers have increased their premium rates across the different lines of business to account for this inflationary impact. In property, where we often see automatic indexing of premiums, this has largely been achieved. However, in motor, which is a very competitive line, premium rate increases continue to lag behind claims inflation in several European countries also in 2023,” she said. “For commercial lines, significant rate increases were achieved in the period 2018-2021. Since then, rate increases have continued, though at a reduced rate, reflecting the need to increase premiums due to inflation. This has kept the positive momentum for commercial lines insurance going for longer than originally expected,” Jakobsen told Commercial Risk. The two largest insurers – Allianz and AXA – also topped the rankings by profit after tax. However, most of Europe’s top 30 p/c insurers reported lower profit after tax in 2022, mainly driven by a negative impact on investment results as well as the effect of claims inflation. Just 11 of the 30 largest insurers in Europe and three of the top 10 reported year-on-year improvements in profits. “Extreme weather events, natural disasters and rising claims inflation have led to higher payouts, putting pressure on insurers’ profitability and contributing to the negative outlooks. Consumer price index inflation also outstripped premium rate increases across most European geographies,” AM Best says in the report. Inflation, supply chain disruptions and a tight labour market are also driving claims inflation, although the magnitude varies by line of business. The impact on motor business, the largest non-life line of business, was especially sharp and contributed to an increase in loss ratios due to the higher cost of parts and labour, AM Best says. The ratings agency expects insurers to “act on premium rates” to support their profitability in light of these challenges. However, persistently high levels of inflation are projected to prevail throughout 2023 and will likely continue to weigh on profitability, particularly in the motor line of business, it says.

Inflation driving higher-for-longer commercial rates: AM Best

Europe’s top property/casualty insurers are better able to capitalise on the hard insurance market, AM Best told Commercial Risk

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