EMEA insurers’ bounce back from pandemic as capital surplus recovers

STANDARD & POORS GLOBAL RATINGS in recent data says the capital surplus of insurers in Europe, Middle East and Africa (EMEA) has largely recovered, adding that it currently stands at 92 percent of its pre-pandemic level.

Analysts expect the non-life insurance sector in the EMEA region to maintain solid insurance margins going forward, despite competition picking up in motor lines.

For property and casualty insurers specifically, S&P notes that companies in many EMEA markets have also displayed solid technical margins alongside low and negative interest rates.

After pandemic lockdowns caused windfall profits because of lower claims frequency, competition in this sector has now started to increase, and claims frequency is normalizing.

S&P expects the recent spike in inflation to be a short-term blip that will not alter claims costs beyond 2021, although Germany will likely face a record high natural catastrophe burden after the floods in 2021.

All in all, for 2022, analysts expect P&C insurers to maintain robust margins or see only a slight decrease. For life insurers, low and negative interest rates remain a challenge for companies in some EMEA, but, for many, margins are expected to bottom out in many major life markets. “In many cases, the quality of capital remained high, with hard capital providing a solid base and hybrid capital limits underused,” S&P stated.

TIMING, CAPACITY AND GROWING concerns about insurers walking away from certain risks are all leading to fears from brokers that the 2022 renewals may be as tough as the year just gone, although others reported a glimmer of hope that rates may not increase quite as severely

RENEWALS

Slowly but surely, it seems that brokers and their risk management clients have seen the worst of this hard market. But that is not to say the 2022 renewals will be anything but tricky.

This time last year, brokers were battling as insurers chose not to renew entire programmes, walked away from certain classes or reduced their capacity in others – often all very last minute and leaving brokers and their clients scrambling to find the right cover in the nick of time.

This year, there is a hope that the worst is over and that insurers have reduced their appetite as much as they needed to and that placements can be fixed in a calmer fashion.

However, brokers are not wholly confident. They are already working hard with clients to prepare programmes and to have the best levels of information about risks to present to insurers in the coming weeks.

It is all about preparation, they agreed. As one Dutch broker said: “After such dramatic action last year, this year’s renewals should be smoother, simply because insurers have ejected so much business that they simply did not want any more. Key this year is the ability to keep lines of communication open between insurer, broker and insured.”

That view was echoed across the continent, as brokers said there was a glimmer of hope that insurers were satisfied with the cuts already made. However, they were not promising rate cuts or event freezes.

“I think rates will still be rising,” explained one broker, “but perhaps at a lesser rate than last year.” Another suggested the increases would be in the 10%-20% range, rather than the 300%-400% experienced in some classes last year. But another reported [that] those massive hikes are continuing.

And they are also worried about how long it will take to get programmes signed off and agreed. “It is about the timeliness of terms being presented and giving us some mobility to react. We start out larger renewals 90 days ahead of a plan, we have a strategy, we have agreements and then you engage with the underwriting side of the equation and it doesn’t fall into place,” said one. “It seems we are on their schedule. That is fine but we need mobility.”

LIMITS

Another major concern is around limit stability, as one respondent explained: “You might have had a $10m tower going into renewal and that tower is priced the same per million but you only have $2m from that same underwriter, and all of a sudden you have $8m that is attached against a contract or bank agreement and you need to find cover.

“That is the biggest concern, along with it taking three times as long to produce. For example, you book a Zoom call and then it gets put back and before you know it, it has taken three times as long to sort out.”

Another added: “Capacity is also key. If I look at the co-insurance market in the Netherlands, it is shrinking. So, finding 100% capacity is the essential thing but we are faced with differences in pricing and in terms, so it is taking three times as long to do a normal renewal.”

RAY OF HOPE

Some brokers, however, had words of comfort for the insureds, believing that now insurers have fixed their positions and chosen their preferred lines of business, it is unlikely insureds will face the same nightmare again in the 2022 renewals.

But that might depend on the relationship between broker and insurer, said a German broker. “It is much more important to have a good relationship with the insurer now,” he said. “If you are discussing a usually profitable piece of business with the insurer, it is a little easier.”

For another broker, the biggest challenge was to ensure insureds understood what was happening and the implications of the changing market conditions.

“They needed to realise very fast that the market was truly hardening, after so many years of a soft market in which insurers had tried to talk up a harder market but failed. This time it was for real,” he said.

Another concluded: “We see a lot of insurers that are cherry picking. We are seeing what they don’t want to insure but it is only the insurance industry who can do this job. We need them to offer cover to our clients.”