Large European reinsurers posted very strong financial results for 2023, enabling them to bolster reserves and balance sheets and this will support ratings in 2024, according to analysis by Fitch Ratings.
The ratings agency feels that Europe’s big four reinsurers, Munich Re, Swiss Re, Hannover Re, and SCOR are well placed for a strong 2024, even though underwriting margins will likely peak this year.
In contrast to 2022 when high inflation, rising interest rates and climate-related losses had a real impact on results, Fitch highlights a notable shift in profitability in 2023, “with both the property and casualty (P&C) and life and health (L&H) segments posting improved underwriting results, paired with a marked increase in investment returns.”
In fact, during 2023, the reported average P&C combined ratio strengthened by 9 percentage points on a like-for-like basis from the prior year to 90%, driven by significantly higher prices and conditions and lower natural catastrophe claims. In L&H, profits increased as a result of lower excess mortality claims linked to the COVID-19 pandemic.
European reinsurers also produced strong investment results in 2023 as returns recovered from the lows in 2022, driven by rising recurring income on higher reinvestment yields and supported by positive fair value changes.
“Fitch anticipates that the reinsurance pricing cycle, along with reinsurers’ margins, will peak in 2024. At the January 2024 renewals, risk-adjusted price increases slowed but the improved programme structures (e.g. higher attachment points) as well as terms and conditions were maintained,” says Fitch.
The four reinsurers also took advantage of the profitable underwriting margins in property to set aside additional reserve buffers in liability lines, which Fitch says enhances the resilience of balance sheets and ultimately supports ratings.
Additionally, Fitch reports that all of the reinsurers maintained a very strong capital adequacy as of year-end 2023.
“Strong earnings generation and positive market effect broadly offset capital deployment for new business and higher capital repatriation to shareholders. Financial debt leverage improved slightly on average,” says the firm.
