The short-term insurance industry outperformed the broader economy, reflecting resilient demand for insurance. Sample gross written premium (“GWP”) growth nevertheless moderated to 5% from 8% in 2019 but is expected to rebound to an extent in 2021.
Contingent Business Interruption (“CBI”) claims and provisions resulted in the sample underwriting margin narrowing to 5% from 8% in 2019, offsetting low claims frequency during the hard lockdown. Net earnings were further impacted by lower interest rates, with the sample return on net earned premiums (“NEP”) reducing to 8% from 11% in 2019. Normalised earnings are expected be within historical averages over the next 12 to 18 months, although there is still substantial uncertainty regarding the development of CBI claims.
Average risk adjusted capitalisation also narrowed but remained sound, while liquidity was maintained at strong levels on average, although both metrics varied widely amongst individual insurers. These factors are expected to continue to be supported by high profit retention, reduced net premium growth and broadly conservative investment allocation, but are sensitive to further adverse development in CBI claims estimates.
GCR will periodically provide insights on key sectors/industries across different territories in which various rated entities are domiciled, encompassing changes in the operating environment, performance trends and its view of the impact of an evolution in market dynamics on the credit risk profiles of rated entities in selected industries.
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