According to Fitch Ratings, the three major European insurance groups – Allianz, AXA, and Zurich – have effectively managed the effects of the macroeconomic environment, such as high inflation and interest rates.
The report, titled Peer Comparison: Allianz, AXA and Zurich discusses the groups’ comparable non-life and life insurance activities, but omits the asset management units at Allianz and AXA as well as Farmers Group, Inc. at Zurich.
Fitch Director of EMEA Insurance, Robert Mazzuoli, stated that the three companies had successfully managed 2022’s macroeconomic challenges due to their robust company profiles.
Mazzuoli said: “Allianz, AXA and Zurich successfully managed 2022’s macroeconomic challenges thanks to their very strong company profiles, rigorous risk management and sophisticated asset- liability management.”
Allianz, AXA and Zurich using pricing power to offset high inflation
Fitch’s ‘Peer Comparison: Allianz, AXA and Zurich’ report revealed that new business volumes in life insurance had declined due to increased competition from banks and lower savings rates of private households. The fair value adjustments on the insurers’ bond portfolios had led to a decrease in investment income and IFRS shareholders’ capital.
Despite the challenges, Allianz, AXA, and Zurich demonstrated “very strong” financial performance by using their pricing power to offset the impact of high inflation on earnings and capital. However, inflation had negatively impacted the retail motor business of the three insurance groups as spare part prices had surged and claims frequency had risen.
Fitch Ratings stated: “Very strong company profiles with dominant market shares and high diversification benefits as well as conservative reserving and rigorous risk management help to offset headwinds from the macroeconomic environment.”
Price adjustments are mitigating effects
Fitch noted that significant price adjustments in non-life, business mix shifts in life, and a moderate positive correlation of solvency ratios to interest rates had mitigated the effects of the challenging macroeconomic environment. Additionally, the three insurance groups were less affected by natural catastrophe claims in 2022, which went against the trend of increasing claims due to climate change.
Fitch highlighted that rising inflation and tightening of monetary policy had continued into 2023, and the failures of several banks in the US and Switzerland had added to the nervousness in financial markets.
However, Fitch expects that the three insurance groups will maintain profitability and capital adequacy on similar levels as in 2022, thanks to their strong company profiles with dominant market shares, high diversification benefits, conservative reserving, and rigorous risk management practices.
