Inflation will pressure profits for Belgium’s P&C insurers, Moody’s warns

Belgium’s property/casualty insurers are expected to record lower underwriting profitability amid inflation and rising costs, according to ratings agency Moody’s, which assigned the sector a negative outlook.

Moody’s said high levels of inflation in Belgium are driving up the cost of claims for insurers, which will be difficult for insurers to pass on to clients. Moody’s said the market remains highly competitive, driven by brokers, and the impact of increasing premium rates for buyers will be limited.

Home, or fire, insurance prices increased by an average 10% in July 2022 but motor insurance, where inflation costs are highest, saw prices fall slightly.

“Belgian insurers’ scope for price increases in motor insurance, Belgium’s largest p/c line of business, is limited by intense competition,” Moody’s said.

At the same time, Moody’s said the country’s automatic wage indexation mechanisms will quickly increase operating expenses for insurers.

Belgium’s p/c insurers are also likely to face higher reinsurance costs, Moody’s said, while uncertainty remains over the sector’s liability for natural catastrophe claims. Belgium caps the amount of claims that insurers pay in event of earthquake or flooding, sharing the cat loss with local governments for extreme weather events. But Moody’s said heavy flooding in 2021, which caused more than €2.5bn of insured losses, required insurers to pay more than the legal cap.

“Because the public sector remains reluctant to take on the growing cost of climate claims, and discussions between reinsurers and local and federal governments are ongoing on this topic, this creates uncertainties around the ultimate claims burden for insurers,” Moody’s explained, adding that insurers are expected to buy more reinsurance at extra expense.

These factors combine to dampen profitability prospects for 2023, Moody’s warned, although it said higher interest rates will offset some of the underwriting pressures.