Shrinking portions call time on insurance feast

Insurance CEOs have had a good run of late. Zurich Insurance’s ZURN Mario Greco delivered record results in the first half of the year, while Aviva AV. boss Amanda Blanc reported a 22% boost to operating profit on Thursday. But this feast of profits could be about to turn as they all face a problem: the prices punters will pay to cover many risks, from property damage to cyber hacks, are falling. That will eventually eat into returns, and valuations.

After the pandemic insurers needed to replenish their stores. Lockdowns and deaths triggered massive payouts on life and business interruption policies. That was then followed by years of double-digit inflation. Insurers therefore had to ramp up the price of premiums to keep pace with the cost of claims. In 2021, the average insurance premium jumped by 15% upon renewal according to data from broker Marsh, and that buoyant growth continued for another two years.

This windfall drove up returns, and insurance company valuations. In the second quarter $166 billion Allianz ALV delivered 4.4 billion euros of operating profit, a 12% increase on the previous year and a record for the German company. Zurich’s annualised return on equity in the first half topped 26%. The STOXX Europe Insurance Index has nearly doubled since 2021, whereas the main STOXX 600 Index is up only 35%.

However, the years of plenty are ending. In the three months to June 30, global insurance rates on new policies fell on average by 4%, the fourth consecutive quarterly decline, Marsh says. The problem is twofold: insurers are competing aggressively for new business and driving down rates. And customers may be becoming wary of paying such high prices. The fall in rates is coming at a time when payouts on perils like wildfires and other catastrophes soared to a record $140 billion in 2024, the highest level in seven years, according to data from Crawford & Company.

Insurers could therefore find themselves facing a double whammy of falling revenue, and higher claims. They may have to keep slashing prices to maintain market share, or accept lower growth. They may also pile aggressively into areas where rates are still buoyant, like casualty cover for car accidents, driving down returns. Despite this Zurich trades on 15 times its expected earnings for 2025, up from around 12 times at the start of 2023, according to LSEG data. Allianz’s 12.5 times forward multiple compares with around 9 times two years ago. Investors may be caught off guard when the insurance party comes to an end.

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CONTEXT NEWS

British insurer Aviva on August 14 reported a 22% jump in half-year operating profit, driven by strong growth in UK & Ireland general insurance premiums and higher wealth net flows.

Zurich Insurance on August 7 reported a 6% rise in its first-half operating profit as individuals and businesses continued to spend on insurance policies amid concerns over severe weather-related catastrophes.

British insurer Beazley on August 13 lowered its annual premium growth forecast.

On August 1, Axa reported 7% growth in gross written premiums and other revenues in the first half of 2025 versus the same period in 2024. Its underlying earnings were up 6% versus the first half of 2024.