Global P&C insurers to face profit pressure but outlook stable in 2021 — Moody's

The 2021 outlook for global property & casualty (P&C) insurance is stable, underpinned by robust capitalisation with COVID-19 commercial losses largely contained and signs of positive pricing trends, but uneven economic recovery will constrain premium growth in 2021, according to Moody's.

According to Moody's Investors Service report, the key challenges facing the P&C sector will include low interest rates, rising litigation costs and increasing natural catastrophe frequency.

"Our stable outlook for the global P&C insurance sector reflects good capitalization in the sector and positive pricing trends in commercial lines," said Dominic Simpson, vice president – senior credit officer at Moody's Investors Service. "That said, this outlook remains tempered by profit pressure from low interest rates and rising litigation costs."

Insurers are also increasingly exposed to climate risk, as threats from more frequent and severe storms and wildfires are leading to rising reinsurance costs, the agency noted. The frequency of weather-related events has increased, leading to both greater uncertainty and risks for insurers.

However, the stable outlook is supported by the fact that significant business interruption claims have been contained via reinsurance protection and countered by reduced claims frequency in personal lines. Investment portfolios are also relatively conservative and well-positioned to manage volatility.

Additionally, commercial lines price increases will help combat rising litigation and catastrophe losses, with P&C insurers continuing to absorb coronavirus-related commercial claims from earnings.

Still low investment yields will curtail insurers’ profit margins, and fragile economic recovery will constrain premium growth in 2021, warned Moody's.

Overall, the P&C sector's growth will be led by commercial lines and emerging markets in 2021, it concluded.