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A new paper comparing the gross written premiums (GWP) and profits of the top 30 European insurers showed that, in 2022, the latter slipped compared to the previous years. Fixed income results greatly affected whether the company’s investment returns were able to mop up the shortfall.
The new paper revealed that, for many insurers, investment returns and underwriting performances were diverging in the current market. This has been partly blamed on large natural catastrophe losses for underwriting, whilst the high interest rates and inflation had the effect of cushioning some investors.
The paper, AM Best’s new Market Segment Report, said that Europe’s top ten-ranked insurance companies “remain unchanged in 2022” but that “overall GWP grew for the European 30 largest insurers but total profit after tax” fell year-on-year.
It added that GWP by the largest 30 insurers in Europe grew by 11% year-on-year in 2022, and the continent’s ten largest insurers “collectively grew at a faster pace than their [smaller] peers”.
The largest company by GWP in Europe was Allianz, followed by AXA. Lloyd’s, Chubb, and Zurich Insurance Group rounded out the top five.
“Fixed income valuation losses should reverse as the assets reach maturity, and that higher interest rates will also benefit insurer investment returns .”
Six of the top 30 were domiciled in Germany and France, respectively; four were in the UK, and three were in Switzerland and Spain. At the lower end, there were two insurers domiciled in Italy and the Netherlands, and one each in Finland, Luxembourg, Belgium, and Austria.
According to the paper, most of the group reported lower profit after tax in 2022, mainly driven by a negative impact on investment results as well as the hit taken from claims inflation.
AM Best said that overall profit after tax was materially lower in 2022, with most of the insurers reporting significantly worse results than the year before.
“The main driver for this was a negative impact on investment results from the movement in the market values of investment portfolios that were, in turn, driven by rapidly rising interest rates during the year.”
This, however, could be misleading as valuation movements on fixed income are reported through “other comprehensive income” for most insurers, AM Best said, which does not affect profit after tax. “Some fixed income valuation losses should reverse as the assets reach maturity, and that higher interest rates will also benefit insurer investment returns over time.”
“Near-term risks to spread sectors and bond yields are
skewed to the downside.”
Several of the largest declines by the insurers – namely Lloyd’s, Aviva, and R+V – were partially driven by poorly performing investment returns. With investment taken out of the picture, all saw technical profits in 2022.
Issues with fixed income returns have been noted. A recent paper by Goldman Sachs Asset Management said, “we think near-term risks to spread sectors and bond yields are skewed to the downside, especially when considering the potential for incoming economic data to fall short of expectations or appear outright weak.”
In its Fixed Income outlook paper for Q4 2023, the US asset manager also said there were downbeat economic signals from Europe.
Earlier this year, reinsurers also saw their investment results hit by poorly performing fixed income returns. H1 2023 investment losses were partially assigned to fixed income securities in investment portfolios performing worse than hoped for.
It’s likely that this continued divergence between investment and premiums is likely to continue as volatile market conditions persist.
