Insurer profits, premiums rise alongside costs

Higher interest rates are translating into higher returns on insurer investments, according to the Swiss Re Institute.

Swiss Re Institute researchers report that 2023 is a transitional year between a tough 2022 and a more profitable 2024. (Credit: Rudzhan/Adobe Stock)

In conjunction with higher operating costs and increased claim costs, insurers are seeing some benefits from this tough economic environment, according to the Swiss Re Institute.

Researchers reported recently that higher interest rates are translating into higher returns on insurer investments. What’s more, the uptick in premiums due to higher costs also is translate into increased profitability. “The benefit of higher interest rates on insurers’ investment results far outweighs the associated higher cost of capital,” Swiss Re Institute said in its early September report titled, “Raising the bar: Non-life insurance in a higher-risk, higher-return world.

Here are some other takeaways from the report:

“Higher interest rates transform the economics of insurance and put insurers on a more financially sustainable long-term path,” the report says. “In 2023, we expect improving profitability for most non-life businesses, as underwriting measures adjust to claims trends and higher portfolio yields boost net investment income.”

Inflection point

Swiss Re Institute researchers reiterated the idea that 2023 is a transitional year, with a tough 2022 in the rearview and a more promising year ahead, in another recent report, “U.S. Property & Casualty outlook: Premiums in a race to catch up with claims costs.

“Strong and accelerating rate increases in personal lines, an ongoing hard market in commercial property and high reinvestment yields were offset by the costliest second quarter for natural catastrophes since 2011, persistent inflation, and slowing favorable reserve development,” this report says.

The Institute concluded that it anticipates lower investment returns in 2023 due to catastrophe costs, but this year is still expected to be an improvement over 2022.

Also worth noting from this report:

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