A new report from Fitch Ratings has highlighted how Swiss property & casualty (P&C) insurers will maintain their strong profitability throughout 2023 and 2024, due to disciplined pricing strategies that mitigate the effects of higher claims inflation.
According to analysts, the non-life market – which includes health – average combined ratio remained stable at around 90% in 2022, with claims inflation being offset by lower catastrophe losses and increases in premiums of about 3%, broadly in line with inflation.
In the report, Fitch states that it expects the combined ratio to remain below 95% in 2023-2024, with premiums even expected to grow over 2%.
However, analysts noted that stagnant premium growth remains the key challenge for life insurers. At the same time though, Fitch says that it expects higher market interest rates to alleviate some of the pressure on profitability of the guaranteed life products.
But, despite the favourable moves in interest rates, the overall condition for full-coverage group pension products that are sensitive to changes in interest rates remains unfavourable. These products make up a large part of Swiss life insurance market.
Fitch suggests that this has resulted in a continuing shift in product mix towards more capital-light semi-autonomous pensions (SAPs), where clients – usually employers – bear the investment risk instead of the insurer.
Analysts warned that the increasing portion of SAPs will lead to a further decline in total premiums as SAPs do not contain saving premiums.
Fitch concludes by stating that premium growth within individual life insurance may also begin to slow down in 2023 due to macroeconomic uncertainties and volatility in equity markets, which ultimately could lead to a decline in demand for unit-linked products, which drive growth in this segment.
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