Claims costs are still largely rising faster than premiums, with UK auto CPI maintenance and repair up 8% in the year to June, as an example. The rollout of IFRS 17 accounting has the potential to sharpen investor focus on book value and the return on it, believes BI, but the uncertainty caused by the new accounting rules hasn't dampened sentiment so far in 2024.
BI recognises three key themes for 2024: inflation, high costs, and premium rates needing to rise. Claims inflation has characterized 2023 trading, and BI expects it to be a feature of 2024. Additionally, the cost ratio of most insurers remains too high, it is crimping returns and isn’t being helped by both inflation and claims inflation. This makes cutting costs difficult. This is key when top lines stall due to weak economies.
Upwards pressure on claims paid and costs driven by inflation means it is imperative that insurers continue to push premium rates up in 2024, in BI’s view. Margins are likely to remain under pressure as claims inflation always lingers longer than anyone expects.”
Kevin Ryan, Senior Insurance Industry Analyst at Bloomberg Intelligence, commented: “European P&C Insurers' concerns about crimped margins in 2023 as inflation and interest rates rise, combined with the continued war in Ukraine, didn't lead share-price returns to slow significantly. Premium rate increases in many cases appear to be keeping up with inflation. It's important the premium increases are maintained throughout 2024 to protect margins, which remain thin.”
European P&C Insurers’ Recovery Continues
The share prices of BI’s European property and casualty (P&C) insurer peer group rose 11.4% in euro terms (11% in dollars) year-to-date through Jun.28, outperforming the Stoxx Europe 600 Index's 10.7% increase amid concerns over the economic challenges posed by inflation and the ongoing geopolitical uncertainty.
This maintained the recovery from March 2020's lows, when shares plunged an average 44% vs. the start of the year – a trend that has steadily reversed. European P&C shares have moved up in 2024, outperforming the broader market. The group outperformed the benchmark by 6.8 percentage points.
Ryan added: “European P&C insurers' price returns have been supported by robust business models in 2024, under-pinned by strong capital bases. Recognition of that underlying strength doesn't appear to be giving way to concerns about economic stability, inflation and war in Europe. The demonstrable ability of insurers to run their businesses with staff working from home during Covid-19 helped performance in 2021, and the organizational strength this demonstrated has helped performance in 2022, 2023 with momentum continuing in 2024.”
Bloomberg Intelligence’s Europe P&C Insurance Midyear Outlook report
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