Insurance Sector Indicators - 1st four months 2023
The Insurance Sector- Insurance Indicators
(source APS, Associação Portuguesa de Seguradores, except when others are indicated)
In terms of conjuncture, The asymmetric but overall marked economic recovery we saw in 2022, was amidst uncertainty and main emphasis on the "runaway" inflation caused by the effects of the war in Ukraine.
We are in an era of plain sailing in which no one can predict for sure the effects of this war for which there is no end in sight, and the last months have brought unexpected surprises: the economy is cooling down less than expected (credit to the growing notoriety of Portugal as a tourist destination and the willingness to travel that characterizes the post covid), after the 6.7% growth of 2022; the galloping inflation that we haven't remembered for decades, closed the year at 7.8% and in aggregate terms in this 1st quarter grew even more, but in April it was only 5.7% - let's see what will be the impact of the new increases announced recently in fuels. Unemployment, meanwhile, rose in Q1 but fell in April.
In terms of the health of the sector,
Results are still known for few insurers in Q1 2023, but it is interesting to highlight the overall good performance last year.
In accumulated terms for the Insurers under Portuguese jurisdiction, Results for 2022 were up 39% compared to those of 202, having reached 900 million euros and written premiums of 12 billion. Includes the aggregate data of about 40 of the 63 insurers established in Portugal, including those under Portuguese law and the branches of foreign insurers headquartered in the European Union.
The solidity of the insurers remains firm overall, as indicated by the two most important ratios monitored by the ASF:
SCR- Solvency Capital Requirement: 202%, which represents a decrease of five percentage points in relation to the end of 2021, but well above the 100% considered minimum to ensure solvency. The SCR is the measure of the amount of own funds necessary to absorb losses resulting from a high adversity event and results from the aggregation of the capital charges relative to the various risks to which insurance companies are exposed.
MCR- Minimum Capital Requirement: a decrease of 48 percentage points, standing at 528%, well above the minimum of 100%.
In terms of the sector's production
Contrary to the homologous growth seen in 2021 (+34.0%), global production in Portugal fell by about 10% in 2022 and the drop became more accentuated in these first 4 months, to 13.5%, exclusively explained by the significant contraction in the Life branch (22% in 2022 and now in this first third of the year a drop of more than 1/3 compared to the same period in 2022). Life is mostly sold by Banks and was especially penalised by the prolonged environment of low interest rates, with particular impact on financial products. However, life risk insurance has evolved positively, in line with home sales.
The recovery of the economy was evident in the strong performance of Non-Life, which continues to grow for the 9th consecutive year, now even slightly above inflation (the opposite marked 2022, despite absolute growth of 7%).
Non-Life claims costs had grown in 2022 by only 3.8%, but inflation of 7.8% in 2022 and that of 8.6% accumulated in these first months of 2023, are increasingly felt in the industry's settlements at claims level, with repairers and above all in health services, putting pressure on the upward revision of insurance rates.
Let's look at what happened in the main Non-Life branches.
Car (jan-apr23/jan-apr22)
Production has evolved positively but well below inflation (5.8% in 2022 and 4.4% so far in 2023), as a result of upward tariff corrections and an increase in the insurance stock, which in 2022 increased by 1.4%). But inflation of the costs of claims and an increase of open claims - a reflection of a more "normalised" economy - had an impact on an increase of the percentage of claims of the branch (above all in Property Damage) and which, overall, increased 2.2 percentage points; claims in the Third-Party Liability component remain among the highest of all the sub-branches (76.81 PT3T) (data for 2022).
All though it is a hinged branch with many waves of competition, prices are set to increase further during 2023, by claims and inflation pressure.
AT- Accidents at Work (jan-apr23/jan-apr22)
After 5.8% of growth in 2022, in these first 4 months of 2023, the branch has soared, due to the good evolution of the economy, rising tariffs but above all due to the wage growth/insurance capital.
This has been the branch where the supervisory authority has in recent decades most advised prudence in competition and the effects are plain to see, with 2022 ending with accident levels not seen for a long time (55.1%).
IOD- Fire and Other Damage (jan-apr23/jan-apr22)
A slight upturn from 7% in 2022 continues in 2023, due to the increase in the number of policies and the rates on average increasing. In the first 4 months of 2023, the industry's production has increased 5.2%, compared with the same period in 2022, although in a very asymmetrical manner (almost +10% in housing risks and -2.7% in trade and industry risks).
Claims were fairly contained, were it not for sudden incidents of natural phenomena, in particular the floods of December 22 in the Lisbon Metropolitan Area, which gave rise to a volume of compensation paid for the activity of more than 47 million euros (and to these losses we should add those that were not covered by insurance and which are estimated at more than 601 PT3T of the total).
Unfortunately, low rainfall and rising temperatures anticipate a 2023 with a high probability of forest fires. We advise extreme caution in prevention and containment measures, namely in terms of cleaning the forests around industrial units.
Given the high incidence of "uncontrolled" phenomena of nature on the planet (to which we can add the spiralling phenomenon of cyber-attacks), with high losses for reinsurers, their openness to risk-taking has been decreasing and selectivity and hardening of underwriting conditions are the order of the day.
Health (jan-apr23/jan-apr22)
The frank growth of this branch has been one of the most regular in the last 15 years (see graph below with the most recent years), but in the year 2022 it has the merit of exceeding double digits (11.5%). And the growth acceleration trend was even more expressive in the first third of 2023: 15.3%, compared to the same period in 2022.
The notion of fragility has become more acute with covid and the social responsibility of companies for the well-being of their employees also has its impact on 9.6% increase in the total number of insured persons registered in 2022, ending the year with 3.35 million with health insurance.
2023 continues to bring upward pressure on prices (between 5 and 10%)The average increase of 4.6% in the premium per person in 2022 is largely absorbed by inflation in health costs, which is even higher than general inflation. By way of example, it should be noted that the cost agreements for clinical acts were recently revised upwards after almost 12 years without adjustments.
Last May 8 Eco Seguros could read:
On the positive side, most insurers, sensitive to the impact of the pandemic and now the war on mental health, are integrating more openness to psychiatric illnesses and free check-ups into their coverage.
Discounts for good health practice measures are increasingly used.
Insurance Sector Indicators - 1st four months 2023
