FTSE 350 Review: Insurance stocks boosted by rising premiums

The likes of the recent ransomware attack that has paralysed operations at the British Library, which is estimated to cost £6mn to fix, highlights how specialists such as Beazley (BEZ) can theoretically still benefit from rates that are near historic highs. However, analysts note that several reinsurers are now entering this space, and cyber security could become more of a buyers’ market this year.

Meanwhile, Swiss Re reckons that total natural disaster losses amounted to a relatively modest $100bn ($79bn) for 2023, mostly in the secondary insurance market. It also helped that only 40 per cent of the economic losses were insured, a gap that seems to be increasing – in 2019 the comparative figure was 56 per cent, according to Peel Hunt.

While the costs of the Japan earthquake have yet to be fully accounted for, the year ahead promises to be a decent one for non-life insurers, based on renewal rates seen in January. These rates are rising by low single digits, on top of the double-digit rate rises the industry saw in 2023. This leads analysts to conclude that the hard insurance market will continue in 2024, with non-life insurers continuing to see increased profitability on the back of rising premiums. Leading the way is property, previously a laggard as insurers held back from the market, but which looks set to register prime rate growth as more capital takes advantage of what had looked like an insurance strike in troublesome areas such as Florida. More written business could also represent an opportunity for specialist reinsurers such as Lancashire (LANC) and Gallagher Re, a division of Arthur J. Gallagher (US:AJG)

Domestically, it doesn’t look like there will be much relief for householders and car owners in the UK when it comes to rising premiums. Motor premiums increased by 19 per cent on average in 2023 and, while industry watchers foresee that we are near the top of the hardening cycle, this is not likely to be much comfort to hard-pressed consumers in the absence of actual price drops.

For car insurers themselves, however, a faster unwinding cycle could have a more significant impact, bringing costs down more quickly than their rates fall. That would boost profitability at Aviva (AV.) Admiral (ADM) and Direct Line (DLG).