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Despite continued market volatility and uncertainty, we are optimistic about the future of the insurance industry, which has shown resilience during the pandemic and in the face of inflation, losses and headwinds of capital reserve requirements.
As COVID-19 turned into a global pandemic in March 2020, the resulting slowdown in economic growth caused insurance industry estimates fell suddenly, but these falls were brief. As customers look for security in challenging times, insurers are seeing increased demand in many business areas, especially in the Asia Pacific, Middle East and Africa markets, which are showing unprecedented growth. By April 2021, the average capitalization of the global insurance market had returned to pre-pandemic levels.
The industry’s resilience has also been reflected in its financial performance. Thanks in large part to a strong stock market, insurers have lifted retained earnings to new heights. And insurers in the North American and Asia-Pacific markets recorded a surplus of more than $1 trillion for the first time.
Since then, this capital growth has given insurers the ability to cope with a changing risk landscape in an increasingly complex and volatile world. But market dynamics are changing and insurers will have to change their strategies to stay resilient.
Inflation affects the entire value chain
Influence prolonged inflation big ones are coming, and insurers will need to prepare. For example, the high cost of repairing a car after an accident or a building after wind or water damage. increase in the cost of claims for insurers. At the same time, fierce competition for workers is pushing up operating costs across the board, but exacerbating problems in business areas such as disability and long-term care that depend on downsizing. care workers.
These rising settlement costs are being passed on to underwriting, leading to further rate increases and further tightening of market conditions. These rate hikes may keep combined odds where they should be short-term, but they won’t keep up as claim costs exceed what the market allows for higher premiums.
It’s not all dark clouds
There is one silver lining in the dark cloud of inflation. As equity markets weaken, rising interest rates driven by inflation could provide insurers with much-needed investment income that they can use to buffer underwriting results.
We also see in our research that the investor community is optimistic about the top 50 insurers by segment. Expected normalized earnings per share (EPS) is now showing a rebound and upward trend through 2024 compared to 2021: P&C insurers at +10.6% CAGR, multi-insurers at +4.3% and life and health insurers at + 0.5%.
We remain optimistic about the operational and financial strength of the insurance industry and continued resilience in the face of market volatility. With increasing awareness of risk and under-insurance around the world, as well as growing concerns related to health and mortality, there is a growing demand for insurance products that provide comprehensive protection. Insurers that innovate in these areas help protect their future and that of their customers.
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Disclaimer: This content is provided for general informational purposes and is not intended to be used as a substitute for consultation with our professional advisors.
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