Non-life insurers are set to significantly improve their profitability in the next few years as investment returns from higher rates cushion a hit from a rise in claims, a report by Swiss Re Institute shows.
Insurers invest a chunk of their underwriting income into a wide range of securities particularly longer-term fixed-income investments, before making claims payments.
While higher claims are a headwind, they are expected to be offset as net investment income is boosted by higher portfolio yields amid the most intense monetary policy tightening since the 1980s.
Reinsurance broker Gallagher Re preliminarily pegged global insured losses from natural hazards in the first six months of 2023 at $52 billion, while weather and climate events alone were expected to have driven an insurance bill of $46 billion.
Against this backdrop, insurers have also been racking up the premiums they charge to underwrite commercial risks for some time, providing a boost to their finances.
The study, released Sept. 9, also found demand for insurance protection has risen since 2017, due to increased natural catastrophe activity as well as inflation.
Swiss Re Institute estimates that in the U.S., property and casualty insurance industry capital has grown by 5% annually on average for the past 10 years. Over the same period, the natural catastrophe protection need has grown at about 7% per year on average.
Reinsurers will play a key role in bridging the gaps in protection as they elevate primary insurer’s risk and enable them to underwrite new business, the report said.
“The elevated risk landscape calls for more frequent adjustments to underwriting practices. Focusing on portfolio quality and margins as well as contractual clarity in the whole industry will be key in this respect,” said Gianfranco Lot, Swiss Re’s chief underwriting officer P&C reinsurance.
