European reinsurers declines in net income return on equity to 3% for 9M2022

The earnings of Europe’s four main reinsurers fell of this year, compared to the same period.

The Fitch Ratings said that this was because of higher natural catastrophe losses, weaker investment returns, and reserve strengthening.

On average, it said that Munich Re, Swiss Re, Hannover Re, and SCOR showed double-digit premium growth in property and casualty reinsurance on the back of rising prices, rising demand and an increased risk appetite.

It also said that the growth ambitions have been backed by a very strong capital adequacy in 2023 following a rise in interest rates.

The main European reinsurers reported a decline in net income return on equity of 6pp to 3% on average. However, differences in risk appetite and steering led to a wide variation of results among the four.

High natural catastrophe claims, write-downs on equity investments and the strengthening of reserves due to high claims inflation were the drivers of the deterioration in earnings.

Life and health reinsurance showed a stronger technical result at all four peers, partly due to lower Covid-19-related mortality claims.

All four reinsurers benefitted from higher prices in non-life reinsurance and most reported double-digit premium growth 2023 – except for Swiss Re, which took a more cautious stance on certain quota-share treaties as it deemed their pricing to be insufficient.

Life and health reinsurance activities improved earnings due to a better technical result, including lower Covid-19-related mortality claims.

Fitch has maintained its ‘neutral’ fundamental sector outlook for global reinsurance to reflect an expectation that the sector’s underlying financial performance will be broadly stable in 2023 with rising prices and higher reinvestment yields compensating for increasing claims inflation and lower asset values.

All reinsurers were affected by Hurricane Ian, which hit Florida recently. Despite this, it said that it was maintaining its ‘neutral fundamental sector outlook’ for global reinsurance. Due to what it called a ‘broadly stable underlying level of profitability’ next year.

Price increases and rising reinvestment yields will help to offset higher claims inflation, more expensive retrocession cover and lower asset values.

by Nataly Kramer