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The property insurance business is expected to remain a loss-making line for French insurers over the next five years, with a loss ratio (ratio of incurred losses to earned premiums) exceeding 85% during 2023-2027, forecasts GlobalData, a leading data and analytics company.
According to GlobalData, property insurance in France suffered losses during 2018-22, with loss ratio exceeding 82% due to recurring natural catastrophic (NatCat) events. As the expense ratio for general insurance in the country reached over 23% during the same period, it resulted in losses for property insurance.
Chandini Sharma, Insurance Analyst at GlobalData, comments “NatCat claims in France have increased during the last five years, due to the reoccurrence of severe droughts and the high frequency of floods. Droughts have cost insurers more than EUR600 million ($716.8 million) per year. The loss ratio for fire and natural hazards line within property insurance remained above 100% during the last five years, as a result of the increase in the number of NatCat events.”
Hot and dry weather conditions are expected to continue during 2023 and beyond, which will further increase claims. Claims related to climate change-related events reached EUR10.6 billion ($12.7 billion) in 2022, the highest in the last 20 years. For instance, the extreme dry climate and severe drought in 2022 resulted in claims related to shrinkage-swelling of clay soils reaching EUR2.9 billion ($3.5 billion). While intense hailstorms in June 2022, costed EUR5.1 billion ($6.1 billion).
Sharma continues: “Record claims in 2022 have forced non-life insurers to reconsider risks when determining premium rates. As a result, insurers are expected to increase premiums and reduce their risk appetite when covering natural disasters.”
According to France Assureurs–the federation of French insurers and reinsurers, the number of new property insurance claims processed in 2022 reached 13.9 million, an increase of one million over the previous year.
Apart from rising NatCat events, high inflation has increased repair costs, thereby increasing claim payouts and reinsurance costs. This has further reduced underwriting margins for insurers in France.
Sharma concludes: “Increase in the number of NatCat events and economic instability are the biggest risks for general insurers in France. However, French general insurers have been able to sustain their losses due to their well-diversified business lines, where they had a conservative approach to setting reserves and higher solvency margins.”
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