The firm’s latest report highlighted that several European markets including general insurance could move to a status of ‘deteriorating’
Insurance sector outlooks for several European general insurance markets could move to a “deteriorating” rating if high inflation and rising interest rates increase beyond predictions, warned Fitch Ratings’ latest report, published last week (15 September 2022).
The credit rating agency’s current base-case forecast is for UK inflation to reach 3.2% by the end of 2023 and 4.3% for the eurozone.
UK inflation currently sits at 9.9% according to the Consumer Price Index’s most recent figures, released last week (14 September 2022). This was the first time inflation eased month-on-month for almost a year, having fallen from the previous month’s figure of 10.1%.
In Europe, Fitch said the conservative economic scenario involved mid-to-high single-digit inflation throughout next year, with 10-year interest rates increasing by a total of 3% in 2022 and 2023.
Under this scenario, Fitch’s findings highlighted that non-life insurance companies with a lack of pricing power and weak reserving levels would suffer the most from credit-rating dips because of the impact of claims inflation on margins and capital.
The UK market being particularly competitive also plays a part in this vulnerability, said Fitch.
Composite insurers, meanwhile, are expected to be relatively unaffected – this is due to life lines of business benefiting from rising interest rates on investment spreads which would, as a result, offsett the impact on its non-life lines.
Insurance Times has contacted Fitch Ratings for further comment.