Moody's sours on pricing power, slashes global P&C outlook to negative

High claims inflation, a return to normalised claims frequency, rising reinsurance costs and an inability to pass costs fully to insureds have turned the tide against insurers, the  Moody's ratings agency said in setting its global outlook on the sector to negative.

“With weaker economic growth and competitive pressures hindering insurers’ efforts to push through offsetting price increases, we expect the sector's underwriting profitability to weaken,” Moody’s said.

Reinsurers are both increasing costs for the sector and pushing more of the earnings volatility back on the primary carriers, Moody's warns.

“In 2023, primary insurers will absorb more natural catastrophe losses themselves as reinsurers cut capacity and raise prices in response to rising claims,” Moody's analysts wrote. Nat cat losses don’t have easy downside: the cross of climate change, demographic trends and rising secondary perils “is magnifying” nat cat losses.

Those claims plus the attritional baseload are landing in an increasingly costly environment. Inflation throughout the economy, albeit heavier in the US and Europe, “has exacerbated claims inflation, with short-tail lines most affected,” analysts wrote.

“In most regions, claims inflation is hurting current year underwriting profitability and could lead to adverse reserved development as well,” analysts wrote of the possible spread of claims inflation from short-tail property to longer-tail lines.

Pricing power to overcome those hurdles will not be universal. Commercial insurers can likely pass on costs more easily than their retail carrier peers. Market leaders have a competitive advantage over smaller rivals, Moody’s notes.

Rising interest rates could provide some cushion on investment earnings, albeit those will have to overcome the possibility of rugged equity valuations and higher credit risk.

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