Despite continued market volatility and uncertainty, we are fundamentally optimistic about the future of the insurance industry, which has shown resilience through the pandemic and in the face of inflation, losses and capital requirements headwinds.
When covid-19 became a global pandemic in March 2020, it caused the resulting economic downturn the insurance industry’s values to drop suddenly, but those declines were short. With customers seeking security in uncertain times, insurers saw increased demand across many industries, particularly in the Asia Pacific, Middle East and Africa markets, all of which experienced excessive growth. By April 2021, the global market value of insurance was back to its pre-pandemic level.
The industry’s resilience was also reflected in its financial performance. Largely thanks to a strong stock market, insurance companies grew their profits to new heights. And insurers in both the North American and Asia Pacific markets achieved more than $1 trillion in surplus for the first time.
This capital growth has since offered insurance companies the capacity to manage a changing risk landscape in an increasingly complex and volatile world. But market dynamics are changing and insurers must change their strategies to remain resilient.
Inflation affects the entire value chain
The effects of prolonged inflation loom large, and insurance companies must prepare. For example, the high cost of repairing a vehicle after an accident or a building after wind or water damage increase claim costs for insurance companies. Meanwhile, fierce competition for workers is driving up operating costs everywhere, but exacerbating the challenge in industries such as disability and long-term care that rely on a shrinking pool of nursing staff.
These rising claims costs are passed on to underwriters – driving further interest rate hikes and continued tightening of market conditions. These rate hikes may keep combined conditions where they need to be short-term, but they won’t keep pace because claims costs exceed what the market will tolerate in premium increases.
All is not dark clouds
There is a silver lining in the dark cloud of inflation. As equity markets weaken, inflation-driven interest rate hikes can provide insurers with much-needed investment income that they can use to buffer insurance results.
We also see in our research that the investor community is bullish when looking at the top 50 insurance companies by segment. Expected normalized earnings per share (EPS) currently sees a recovery and growth trend to 2024 compared to 2021, with Non-life Insurance at +10.6% CAGR, Multi-line Insurance at +4.3% and Life & Health at +0, 5%.
We remain optimistic about the insurance industry’s operational and financial strength and continued resilience in the face of market volatility. With increased awareness of risk and underinsurance worldwide and growing concerns related to health and mortality, the demand for insurance products that offer holistic protection is increasing. Insurers who innovate in these areas contribute to securing their own future and that of their customers.
Get the latest insurance industry insights, news and research delivered straight to your inbox.
Disclaimer: This content is provided for general information purposes and is not intended to be used as a substitute for consultation with our professional advisors.