French Re/insurers Face Unprecedented Nat Cat Losses: Fitch
French Re/insurers Face Unprecedented Nat Cat Losses: Fitch
According to Fitch Ratings, French non-life insurers and reinsurers will see unprecedented levels of natural catastrophe losses this year, adding to the pressure on profitability already being put on by rising claims and a deteriorating macroeconomic climate.
Analysts gave the assurance that ratings are not in jeopardy but stated that the financial performance of the industry is anticipated to significantly deteriorate in 2022 and 2023.
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According to Fitch, losses from wildfires, frost, storms, and drought are already expected to make 2022 one of the most expensive years ever for French non-life insurers.
According to France Assureurs, the storms that hit various parts of France between May and early July resulted in losses of around €3.9 billion, and the wildfires in July and August burned eight times more land than in an average year.
Additionally, according to France Assureurs, weather-related claims totaled €4.3 billion from January to July 2022, which is already higher than the €3.5 billion annual average from 2017 to 2021.
French Re/insurers Face Unprecedented Nat Cat Losses: Fitch
As a result, Fitch believes that natural catastrophe and weather claims are likely to significantly exceed insurers’ annual budgets in 2022, even after reimbursements under France’s natural disaster compensation scheme from Caisse Centrale de Reassurance, the public reinsurer.
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This will likely weaken the underwriting profitability of French re/insurers, and this situation could deteriorate further as weather-related losses become more frequent and severe due to climate change.
In the coming years, therefore, Fitch expects French insurers to substantially increase premiums for property-catastrophe and agriculture insurance, and reduce their exposure to climate-related risks.
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French Re/insurers Face Unprecedented Nat Cat Losses: Fitch
In the near term, however, it’s unlikely that insurers will be able to raise premium rates fast enough to keep pace with rising claims costs, particularly if inflation stays high and if the government continues putting pressure on insurers to offer rebates to consumers.
Additionally, Fitch notes that French non-life insurers will face higher reserving requirements at least into 2023 due to higher-than-anticipated claims inflation. However, Fitch expects the reserve increases to be a drag on earnings rather than to deplete capital given the sector’s historically prudent approach to setting reserves.
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