Moody’s: P&C insurers “must get fundamentals right” to ensure sustainable growth

It is “critical” that P&C insurers ramp up their underwriting discipline and improve their claims efficiency to ensure they are able to navigate the headwinds facing the sector, Moody’s Helena Kingsley-Tomkins has warned.

Speaking to The Insurer TV following Moody’s downgrade of the global P&C insurance sector outlook, Kingsley-Tomkins, VP – senior analyst, urged participants to increase their discipline while thinking hard about their long-term growth plans amid the headwinds facing the industry.

“What we think is critical across the board is for P&C insurers to get the fundamentals right: maintain their underwriting and pricing discipline, settle claims efficiently to minimise cost leakage and inflationary risks,” she said.

Kingsley-Tomkins’ warning comes after the rating agency revised its outlook on the global P&C insurance sector from stable to negative, citing heightened claims inflation, a gradual return of claims frequencies to pre-pandemic levels and rising reinsurance costs.

Maintaining discipline will be essential as some of these challenges could become the root of fresh headwinds for the sector in the longer term.

For instance, high inflation poses a significant threat for long-tail casualty lines because if it persists it will filter through into wages, long-term healthcare and medical expenses, driving up claims costs.

At the same time, claims from casualty lines of business typically take longer to settle, meaning they are more exposed to the perils arising from inflation, Kingsley-Tomkins added.

While facing these headwinds, insurers across the board should focus on maintaining their discipline and keeping their focus on their long-term goals.

“It’s important to keep one eye on the future, so continue investing in supportive technologies and adapting to long-term behavioural, social and environmental trends to build a sustainable business model that is going to be fit for future generations,” Kingsley-Tomkins said.

Reinsurance costs feeding through

The Moody’s report identified reinsurance costs as one of the chief reasons for distress in the global P&C sector.

The rising frequency and severity of natural catastrophes – especially secondary perils – has led to higher reinsurance costs as well as restrictions of coverage.

The reinsurance sector has been under pressure amid heightened losses from catastrophes, which has held back underwriting results and impacted combined ratios.

Global primary insurers, on the other hand, have been able to sustain strong underwriting results in recent years.

These reinsurance costs are likely to feed through to primary pricing.

“Clearly reinsurance is another major cost for the primary groups. We think that overall insurers are going to have to absorb both a higher reinsurance protection cost, but also a greater share of future catastrophe losses on the back of these actions that the reinsurance sector is taking,” Kingsley-Tomkins added.

Some insurers will attempt to pass some of these additional reinsurance costs on to their customers, but pricing power will vary by insurer, line of business and the market they are operating in, Kingsley-Tomkins concluded.

In this nine-minute interview, Kingsley-Tomkins discusses:

  • The outlook for the global P&C insurance sector
  • The impact of inflation on both short- and long-term lines of business
  • The dynamics around reinsurance costs pressures
  • Different challenges facing commercial and personal lines insurers
  • The benefits and challenges of rising interest rates