Zurich’s chief executive predicts that the damage inflation has wrought on its underwriting margins has peaked, despite the insurance group missing analyst expectations as the cost of motor claims soared.
Zurich, one of Europe’s biggest insurance groups, released full-year results on Thursday, reporting a flat combined ratio — claims and expenses as a proportion of premiums — for its property and casualty business at 94.3 per cent. Analysts had expected a slight improvement.
Speaking to the Financial Times, Zurich boss Mario Greco identified the rising cost of claims in its US and European retail insurance businesses, including its domestic market in Switzerland, driven by increasing costs for car parts and other items. A better performance for its commercial business softened the blow.
“Claims costs seem to be moderating themselves, they seem to be coming down,” Greco said of the squeeze on retail, adding that the market was coming back to a “better balance” as prices increased to absorb higher claims costs. This year, retail will “start recuperating margins”, he added.
The insurance group’s life insurance division registered its highest ever profits, driving up group operating profit 12 per cent to $6.5bn. But Zurich’s shares were 1 per cent lower in early trading, while peers Axa and Allianz rose by the same degree, with analysts highlighting the P&C performance.
Other motor insurers have suffered, too. Canada’s Intact, which owns RSA in the UK, reported earlier this week a combined ratio of 104 per cent for UK and Ireland, representing an underwriting loss, as higher inflation and a weather-related rise in accidents drove up motor insurance claims.
Last week, US insurer Allstate posted a net loss of $310mn in the fourth quarter as higher motor insurance prices were not enough to overcome increased claims costs and related increases in its reserves. The chief executive of UK motor insurer Direct Line stepped down last month after repeated profit warnings owing to rising claims costs.
Zurich’s P&C business also suffered from higher claims in US crop insurance, where dry weather hit yields. Greco highlighted the recent drought in Nebraska. The poor end to the year for farmers also knocked big US insurers such as Chubb, which reported full-year earnings last week.
New York-listed Chubb disclosed an underwriting loss of $107mn on its agricultural insurance policies, citing a severe lack of rainfall in the country’s so-called corn belt of producer states. That was one reason why the group’s net income in the final quarter fell more than a third year on year to $1.3bn, while it was also affected by Winter Storm Elliott.
Insurers continue to predict that the cost of insurance will rise owing to inflationary pressures, but also natural catastrophe losses and the rising cost of reinsurance. Rising prices made for a “tough time” for insurers and their relationship with customers, who are more likely to consider switching provider, Greco said. “When the customers see the price increases, they go shopping around”.
