European insurers exposed to weather, hemmed in by inflation: Moody’s
European insurers will face down a sharp rise in exposure to weather events alongside persistent inflation pressures as the chief risks to the outlook for the coming 12 to 18 months, analysts at Moody’s have said.
Primary insurers did not or could not leverage the 1.1 renewals to plug the gaps in reinsurance coverage that had left them exposed in 2023, when they absorbed “most of an above average weather related claims bill” in some countries, analysts noted.
The 2023 reinsurance reset left primary European carriers with higher retentions and gaps in reinsurance coverage or frequent medium-sized events such as hail storms.
Insurers “remain vulnerable to mid-sized weather events, or an accumulation of smaller but more frequent events in the year ahead,” analysts wrote. “Positively, however, their risk retention has not increased relative to 2023.”
“We estimate that European insurers' risk retention has risen by 10% on average for most catastrophe events, with retention rates rising fastest for low frequency events,” analysts wrote.
Those open net exposures became highly visible in 2023, Moody’s said, citing signs that French primary insurers will absorb virtually all of the estimated €1.3 billion of claims from Q4 2023 storms Ciaran and Domingos, a strong swing from how reinsurance cover would have responded previously. Reduced reinsurance may have added up to 2 percentage points to French P&C insurers' combined ratio in 2023, Moody’s estimates.
Inflation trends have yet to ease the burden. “Claims inflation will persist,” analysts wrote, citing strong wage inflation to more than compensate for any easing of pressure in the goods inflation measures.
“P&C insurers will need to push through further price increases to compensate,” analysts wrote, citing peak challenges for motor insurers in fragmented and competitive markets, especially Germany and France. Home insurers are comparatively protected by pricing indexation. Insurers that underestimated the persistence of claims inflation may also have to strengthen reserves.
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