London, Aug 24
.Continued favourable pricing, particularly for commercial lines business, supported meaningful premium growth for the majority of the (re)insurers, said Willis Re’s Strategic & Financial Analytics Global (Re)insurance Flyer for August 2021, tracking 18 of the biggest (re)insurers globally who have meaningful commercial lines or reinsurance operations.
The majority of global (re)insurers reported further growth in premium in H1 21. Double digit premium increases were reported by six of the (re)insurers. The largest premium increase was QBE’s rise of 26% which was supported by substantial growth of its North America crop business, partly due to rising commodity prices.
Despite the strong H1, two concerns weigh on the outlook: the decelerating rating environment and the prospect of higher inflation, said the report.
Growth was largely fuelled by continued favourable pricing for commercial lines business. Rate increases for reinsurance and retail insurance also supported premium growth, albeit to a lesser extent.
Management teams are typically expecting favourable pricing to continue for the remainder of the year and into 2022, although some cautioned that rate increases going forward are likely to be less significant, and indeed have already started to ease in certain parts of their portfolios, said Willis Re.
Strong improvement in headline and underlying combined ratios H1 underwriting results, as was seen in Q1, were exceptionally strong. The average combined ratio for the (re)insurers was 93.7%,with every company posting a sub-100% combined ratio.
This performance was much improved versus H1 2020, which included significant COVID losses, and came despite a higher than average level of nat cat losses (although a lighter Q2 partly compensated for winter storm Uri in Q1).
The result was aided by lower than normal loss frequency in personal lines due to the continuing COVID impact, and, for many, robust reserve releases. Most importantly, though, (re)insurers are also legitimately pointing to improved underlying results, with rate increases outstripping claim trends.
A number of companies pointed to 2-3 percentage points of underlying improvement
Strong European sector solvency raises expectations for improved capital returns
European sector solvency increased to 219% at H1 21 (Year-end 2020: 209%), which is a return to the pre-COVID level at yearend 2019. The key driver of the improvement in solvency during H1 21 was an inflation related rise in risk-free interest rates which occurred in Q1. Although this trend partially reversed in Q2 as inflation concerns eased, risk-free rates at H1 21 remained above year-end 2020 levels. This provided a boost to sector solvency as the reduction in liabilities, which are discounted at risk-free rates under Solvency II, exceeded the reduction in bond portfolio values.
Rising equity markets and retained profitability also supported improvement in solvency during H1. As was the case at Q1, sector solvency remains at the upper end of management guidance levels.
Although some of this buffer will be used to fund growth, it is expected improved capital returns in 2021 and 2022.While US-based companies report their risk-based capital (RBC) measure only on the full year, it is worth noting that the National Association of Insurance Commissioners have agreed changes to the calculation, expected to be applicable for year-end 2021 reporting, that will reduce the capital charge for ceded catastrophe exposure (part of the ‘R-Cat’ charge) by approximately 60%.
For companies with significant cat exposure and large catastrophe programs (such as Florida writers), this could have a significant beneficial impact come February 2022 when RBC is reported as part of company annual filings.