Fitch expects European commercial insurers’ margins to peak in 2024

According to analysts at Fitch Ratings, major European commercial insurers will likely see their underwriting margins peak in 2024, followed by a gradual weakening.

Throughout 2023, these insurers continued to enhance the profitability of their business, benefiting from a prolonged period of rising prices in the market.

Analysts explain, “prices in commercial insurance have been rising for 25 quarters in a row, driven globally by high claims inflation in property catastrophe, insufficient reserving in liability lines, and the pandemic.”

The market experienced a significant correction upwards, with robust profitability across the sector since 2021. In 2023, this trend was bolstered by strong underwriting margins and increasingly favourable investment income.

However, Fitch anticipates that price increases will “lose steam in 2024 amid rising competition.” This is attributed to the fact that as profitability improves, it will attract more capacity into the market, intensifying competition and slowing down price momentum further, eventually leading to a softening of the commercial insurance market in 2025.

“Cyber insurance was the only exception, as increased capacity meant rates started to decline by year-end,” analysts note.

Furthermore, this shift occurs at a time when the industry faces significant challenges in managing risks related to social inflation, climate change, and cyber threats.

Although European commercial insurers have adjusted their terms and conditions alongside price increases to improve the quality of their portfolios, Fitch’s analysts emphasise the importance of continued vigilance as risks continue to evolve.

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