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Industry trapped in earnings gap: Swiss Re

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Insurers in major Western economies and Japan face an uphill battle to raise profitability as weak market conditions persist, Swiss Re warns.

Premium rates must rise faster than claims trends to achieve a sustainable improvement in profitability, its latest Sigma report says.

But an environment of anaemic pricing, weak investment performance and high levels of capital make it unlikely insurers can close the earnings gap any time soon.

Swiss Re says underwriting margins need to improve by about 5-9 percentage points if insurers are to deliver the desired 10% return on equity.

“The global non-life insurance sector is at a weak phase of the profitability cycle… In spite of the modest premium rate hardening…more work to improve underwriting performance needs to be done if current shortfalls in profitability are to be redressed,” the report says.

Insurers recorded a return on equity of 6% last year, down from 7% in 2016.