Robust capitalization offsets P&C profitability pressure in 2018

The global property/casualty (P&C) insurance market will see further premium growth in 2018 supported by continued economic expansion while robust capitalization offsets profitability pressure from still-low interest rates and rising claims inflation, according to Moody's.

"Continued economic expansion will support premium growth for the global P&C insurance sector in 2018," says Dominic Simpson, vice president and senior credit officer at Moody's.

"We especially see good growth potential in China and other emerging markets which, for example, have P&C insurance penetration rates in the range of 1.5 percent to 2 percent of gross domestic product (GDP), well below North America, Europe and the worldwide average which is close to 3 percent. Growing household income and supportive policies in emerging economies will boost insurance penetration, driving P&C market growth in excess of GDP growth".

In addition, capitalization will likely remain robust and resilient to a range of stress scenarios, with the US insurers absorbing 2017 hurricane losses mostly from earnings. This is despite rising claims costs and lower reserve releases.

Still low investment yields, however, will curtail profit margins, despite a gradual increase in interest rates and a continued shift towards higher risk investments in some markets. Nevertheless, low rates promote underwriting discipline, according to the rating agency.

Finally, further investment in technology and innovation is improving efficiency for global P&C insurers. However, Moody's noted that technological change will attract competition and reduce risk pools in some business lines.

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