Market hardening won't keep upper hand over inflation and headline risks: Fitch

The hardening market for commercial rates may be losing altitude just as inflation is taking off and select risks fly high, likely pushing commercial insurers past their profit peak in 2023,  Fitch analysts have said.

"While price increases since 2017 helped regain healthy profitability in 2021, price momentum is losing steam in 2022 – coinciding with rising risks from economic inflation, climate change and cyber," analysts wrote in a new report "Commercial Insurance: Past the Market Peak".

The upshot: " Fitch Ratings therefore expects the sector’s profits to peak in 2023 and deteriorate thereafter."

The benefits of the multi-year market hardening have not fed straight through to the bottom line unimpeded.

High underwriting losses, rising natural catastrophe claims and the Covid-19 pandemic both forced the hardening and capped the margin gain. Investment earnings suppressed by ever-low interest rates furthered the pressure.

Just as the margins story improved in 2021, competition tightened to "slow price increase momentum" in most P&C lines save for Cyber. The ensuing price moderation proved most pronounced in property lines without cat losses plus for casualty lines.

Inflation, with ever the new upside driver since the pandemic started to fade, carries a wildcard impact, analysts warned, from near-term claims costs through to unpredictable reserve creation over an unknown horizon for long-tail products.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.