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Claims inflation is the chief exposure as continued inflation and rising interest rates provide overall headwinds for the property/casualty insurance sector, according to a report Thursday from Swiss Reinsurance Co. Ltd.
Despite the rising interest rates potentially bringing insurers and reinsurers added investment income, “we believe that any gains in investment returns from inflation-induced higher interest rates will not be enough to offset higher claims, and that overall impact on P&C sector profitability will be negative,” Swiss Re said.
The reinsurer noted auto and property insurance claims as likely to be most affected in the short run due to “particularly high construction and car part costs.” Rising labor costs add further to the claims inflation, which is not expected to abate substantially soon due to further automotive industry supply chain issues, which should then resolve past the “medium term,” Swiss Re said.
Further, while rising interest rates are a positive prospect for the whole industry and will likely benefit investment results, “volatile financial markets and widening bond spreads are expected to create accounting losses in 2022,” Swiss Re said.
Demand for insurance products could also be affected as “rising inflation and slowing economies … lower demand for both life and non-life insurance this year,” Swiss Re said.
In the conflict between Ukraine and Russia, the direct impact from losses triggered by the conflict are expected to be “confined and manageable,” Swiss Re said, with potentially “significant” claims in niche markets such as aviation war, trade credit, political risk or marine war, including “concerns about several hundred aircraft still in Russia that are leased from international firms,” Swiss Re said.