No major impact on insurers by inflation: report

According to the independent investment manager the sharp rise in inflation was largely absorbed by price adjustments.

Plenum Investments listed that one-third of insurers report solvency ratios above the target range and have had an increase in their capitalisation.

However many UK motor insurers, such as Admiral and Direct Line, have seen a significant impact on their results, where claims inflation outstripped price increases.

The reported stated that Admiral’s combined ratio in the first half of 2022 deteriorated from 75.2% to 96.7% and Direct Line’s COR went from 84.2% to 96.5% but remained profitable.

Plenum Investments said that both underwriting results were immediately reflected in earnings and caused both insurers to reduce its distributions.

It added that the impact on the second half of the year’s results is likely to be significant, but it is expected to level off soon as insurers continue to re-price policies.

Catastrophic events

According to the report, catastrophic events have increased massively and are growing exponentially due to the increase of insured values in exposed regions.

The investment manager stated that with the increased population density in coastal regions the probability of natural events causing greater insured losses has risen. Economic and demographic factors are key drivers of higher insured losses.

Dirk Schmelzer, partner and senior portfolio manager at Plenum Investments AG commented: “Observation of historical events is not sufficient to calculate hurricane risk. It does not capture changes in settlement or insured values, nor would changing construction methods or building codes be reflected in the measured risk. So, the largest component of the new risk models is demographic and economic in origin.”

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