European Reinsurers Results in 1H2023: Recovery in profitability

There was a strong yoy recovery in profitability in 1H2023 for the four main European reinsurers, Fitch Ratings says.

According to Global Reinsurers Underwriting Review, this recovery followed significantly better underwriting margins in both property and casualty (P&C) and life reinsurance as well as a higher investment income among the peer group – Munich Reinsurance Company (Insurer Financial Strength (IFS): AA/Stable), Swiss Reinsurance Company Ltd (IFS: A+/Stable), Hannover Rueck SE (IFS: AA-/Stable) and SCOR SE (IFS: A+/Stable).

Underwriting margins in P&C improved on average by 4.1pp yoy as reinsures benefited from improved pricing and a lower share of medium-sized catastrophe claims.

Investment income rose on much lower write-downs and higher recurring investment income compared with 1H2022.

The reported return on shareholders’ equity (ROE) rose to 21% on average in 1H23 from 9% in 1H2022, surpassing the companies’ cost of capital (see Global Insurance Market Premiums & Rates Forecast for 2023-2024).

Solvency ratios improved from already very strong levels, thanks to very strong operating earnings and lower financial market volatility.

Price increases maintained their momentum in the June and July 2023 renewals, in particular, for property catastrophe covers as reinsurance capacity remained constrained for aggregate property catastrophe covers, in particular.

This was due to major losses related to weather events and the war in Ukraine often exceeding budgets, record inflation requiring reserve strengthening for more recent underwriting years; and higher interest rates leading to lower fair values for all major asset classes.

TOP-20 European Re/Insurers

RankCompaniesCountryTurnover, mn $
1AXAFrance106 340
2AllianzGermany100 547
3Assicurazioni GeneraliItaly87 041
4Munich ReGermany71 664
5Zurich Insurance GroupSwitzerland58 848
6Talanx (HDI Group)Germany57 037
7Lloyd’sUnited Kingdom56 318
8ChubbSwitzerland52 013
9Swiss ReSwitzerland47 889
10CNP AssurancesFrance38 483
11Crédit Agricole AssurancesFrance37 712
12BNP Paribas CardifFrance32 025
13MapfreSpain26 196
14PrudentialUnited Kingdom23 344
15AvivaUnited Kingdom22 813
16Achmea B.V.Netherlands22 511
17SCORFrance21 064
18CovéaFrance20 367
19R+V Versicherung AGGermany19 962
20Poste ItalianeItaly18 700
Sources: Company reports

The capital position of the big four remained very strong in 2022 due to a varying mix of increases in subordinated debt capital, a positive correlation of solvency ratios to higher interest rates and lower investment risks (see How High Reinsurance Costs Will Impact for European Insurers Operating Margins?).

That this was because of higher inflation, higher weather losses, potential Russia/Ukraine losses, and COVID losses.

Inflation, whilst remaining a concern, is largely under control, companies already took action in Q4 2021 and pricing assumptions reflect a more cautious view on inflation; and the range of outcomes from Ukraine/Russia losses appears to be narrowing (albeit still highly uncertain).

Three out of four reinsurers have decided to increase capital returns to shareholders.

Fitch believes that a hard market environment with better prices and terms and conditions will help to improve underwriting margins in 2023, while the macro-economic uncertainty and financial market volatility will remain challenges this year.

Hannover Re and Munich Re are well positioned and have the capital and capacity to take advantage of the hard market in property cat reinsurance.

Yana Keller   by Yana Keller