Fitch Ratings has highlighted that non-life insurers in France are likely to have gone over their natural catastrophe loss budgets even after public reinsurance coverage reimburses them, suggesting private market reinsurance recoveries are likely being made.
Up to the end of July 2022, French insurers have faced some EUR 4.3 billion of catastrophe losses, according to France Assureurs, which is already more than the annual average of EUR 3.5 billion over 2017-2021.
“Natural catastrophe losses on an unprecedented scale” are set to exacerbate the challenges posed by claims inflation and a worsening macro-economic environment for the French insurance industry, Fitch Ratings explained.
No ratings are at risk, Fitch notes, as the insurers are generally well-capitalised.
But the knock-on effect to their capital and to reinsurance programs, means higher property insurance rates are almost assured after a costly year such as this.
Frost, storms, drought and wildfires have all struck and caused significant insured losses in France this year, with one particular spell of storms that struck several parts of France between May and early July driving insured losses estimated at about EUR 3.9 billion alone.
Meanwhile, wildfires in July and August burned eight times more land than in a typical year and losses are still being counted across the country, while more severe thunderstorms and flooding are also seen as likely by meteorologists, continuing a trend of recent years especially for southern France.
All of which means 2022 could be particularly costly for the French insurance industry, with a level of these claims flowing to reinsurance capital as well.
“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. Insurers’ underwriting profitability will weaken as a result,” Fitch explained.
Leading the rating agency to say, “In the coming years, we expect French insurers to substantially increase premiums for property-catastrophe and agriculture insurance, and reduce their exposure to climate-related risks.”
Over the near-term though, Fitch doubts insurers will be able to raise their rates quick enough to keep up with rising claims costs, particularly if inflation stays high.
The French marketplace has competition laws in place that make elevating rates quickly a challenge, although insurers may have more flexibility to increase rates for corporate clients, Fitch says.
With the price of reinsurance set to rise and French insurers perhaps needing to buy more above where the public reinsurance support exhausts, this could add another pressure for the non-life sector in the country.