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Swiss Re forecasts rate hardening, capacity restraints through 2024


Further rate hardening and constraints on capacity are likely to continue throughout 2024 as property/casualty insurers’ increased cost of capital in 2023 in a higher interest rate environment outstrips their outlook for stronger profitability, according to a report Monday from Swiss Re Ltd.

This year, however, should be a year of improving profitability for most non-life business as underwriting measures adjust to claims trends and higher portfolio yields boost net investment income, the report said.

The cost of insurers’ equity capital has risen strongly since 2021 as monetary policy tightening pushed up risk-free rates, the report said, adding that almost 95% of central banks have raised policy interest rates since 2021.

Capacity restraints are also partly driven by model uncertainty after years of above-average natural catastrophe losses, making investors hesitant and issuing new equity less attractive, the report said.

While higher interest rates may help drive better returns on insurers’ investment portfolios, this cannot be separated from the inflation surge that prompted rising rates, the report said. Other potential headwinds include social inflation, shocks such as the war in Ukraine, and uncertainty around claims trends, reserves and other risks.

Underwriting is expected to play a key role in improving results, as improved terms and conditions increasingly mitigate the effects of inflation on claims costs, the report said.