“We expect strong underwriting profitability to continue supporting the reinsurers’ ratings this year, with price levels and favourable terms and conditions adequately compensating for high claims inflation. Investment income will continue to bolster earnings as reinvestment yields are still above average portfolio yields,” Fitch
Paris/London:
European reinsurers’ January 2024 renewals show that their underwriting margins are close to peaking as supply-and-demand dynamics become more balanced, Fitch Ratings says.
This is in line with our belief last year that margins would slightly improve and then peak this year, with property catastrophe market dynamics slowing. It is also consistent with the expectations underpinning our improving global reinsurance sector outlook for 2024.
Europe’s four largest reinsurers, Hannover Re, Munich Re, SCOR and Swiss Re, defended the significant improvements in their programme structures and terms and conditions that they achieved last year. Premium income growth was generally higher than in 2023, driven more by volumes than by price increases. Market conditions remain favourable, providing opportunities for further profitable growth.
Risk-adjusted price increases slowed relative to those in January 2023, which were the highest since the early 1990s. This reflected sharply improved technical profitability. Nominal price increases were still high, but they were largely offset by conservative loss trend assumptions.
For example, Swiss Re’s nominal price increase was 9% but this was more than offset by an 11% rise in loss assumptions, mostly for inflation and casualty losses. This resulted in a risk-adjusted price change of -2%, compared with +5% in January 2023.
The good market conditions supported strong growth in premium volumes, which averaged 8.3% across the four companies. This is in contrast to the January 2023 renewals, when premium volumes were broadly flat.
SCOR’s premium growth was the highest this time, driven by marine, engineering, energy and alternative solutions.
The renewals showed the reinsurers’ preference for property catastrophe, speciality lines and tailored solutions, with more caution over US casualty business due to the effect of high inflation on claims.
The reinsurers’ maintained their underwriting discipline in natural catastrophe lines, particularly on attachment points. Rate increases were generally higher than for other lines, particularly for excess-of-loss treaties. Munich Re, SCOR and Swiss Re reduced their US casualty exposure, while Hannover Re maintained its level.
All four reinsurers renewed their retrocession covers, helped by increased availability and stable or slightly lower risk-adjusted prices.
Munich Re and SCOR bought more retrocession cover for about the same total cost as last year, while Hannover Re slightly lowered its protection, reducing its ‘K-cession’ securitisation.
“We expect strong underwriting profitability to continue supporting the reinsurers’ ratings this year, with price levels and favourable terms and conditions adequately compensating for high claims inflation. Investment income will continue to bolster earnings as reinvestment yields are still above average portfolio yields,”