Reinsurers’ Earnings Rise on Lower Disaster Losses, Improved Investment Results: Fitch

November 21, 2023

Lower natural catastrophe losses, a better investment result and strong revenue growth in property/casualty reinsurance led to strong earnings’ increases for the four main European reinsurers in the nine month-period of 2023, according to Fitch Ratings in a new report.

On average, the four main reinsurers – Munich Re, Swiss Re, Hannover Re and SCOR – showed mid-single-digit revenue growth in property/casualty reinsurance on the back of rising prices, higher demand and an increased risk appetite, the report said.

The four European reinsurers reported a strong rise in net income return on equity of 18 percentage points to 21% on average for 9M 2023. Higher prices in P&C reinsurance, in particular, drove reported revenues 6% higher on average in 9M 2023. However, revenue growth was capped by a shift towards excess-of-loss treaties at the expense of quota-share treaties, Fitch said.

Lower Natural Catastrophe Claims

All four reinsurers reported natural catastrophe claims below budgets for 9M 23, thanks to better terms and conditions in renewed treaties, which cut the exposure to medium-sized natural catastrophe claims, Fitch continued. They took advantage of very strong underwriting margins in property lines to strengthen their reserves for liability lines, in particular.

Munich Re’s underwriting margins remained the highest of this peer group despite slightly higher attritional losses than last year.

The average return on investment of the peer group rose by 110bp to 2.9% in 9M23 thanks to higher reinvestment yields and lower investment losses. Munich Re lagged peers due to a higher amount of negative fair value changes and higher realised investment losses.

Strong Capital Adequacy

All major reinsurers maintained a very strong capital adequacy as of end-3Q23, as better earnings enabled them to finance a meaningful risk exposure growth this year.

Fitch said this bodes well for future capital repatriation. Munich Re continued to execute on its share buyback program, while Swiss Re bought back US$1.5 billion of its outstanding subordinated debt in October 2023.

Fitch has maintained its “improving” fundamental sector outlook for global reinsurance to reflect an expectation that the sector’s underlying financial performance will continue to improve in 2024, said Fitch, noting that price discipline and higher reinvestment yields above portfolio yields will continue to support earnings and compensate for elevated claims inflation.

Source: Fitch Ratings