Fitch Ratings has highlighted the exceptional financial performance of Europe’s leading reinsurers in 2023, noting their ability to strengthen reserves and balance sheets, which is poised to bolster their ratings into 2024.
In its latest report, the agency views the cohort — comprising Munich Re (rated AA/Stable), Swiss Re (A+/Positive), Hannover Re (AA-/Stable), and SCOR SE (A+/Stable) — as well-positioned for a robust year ahead, although it predicts a plateau in reinsurers’ margins by 2024.
These reinsurers witnessed a strong average return on shareholders’ equity of 19% at the close of 2023, a figure that doubles the rate seen at the end of 2022. This surge was largely fueled by substantially higher pricing and improved conditions, coupled with a reduction in natural catastrophe claims, which drove the average property and casualty (P&C) reinsurance combined ratio down to 90% – a nine percentage point improvement year-over-year.
Additionally, the life and health (L&H) reinsurance segment saw increased profits due to a significant drop in excess mortality claims, while investment results were buoyed by increased recurring income and positive fair value adjustments.
In light of favorable underwriting margins in property insurance, the four reinsurers have allocated additional reserves for liability lines. This strategic move not only fortifies the balance sheet’s resilience but also offers the flexibility to even out earnings over time, thereby supporting their credit ratings. Despite higher shareholder payouts, capital adequacy remains robust across these entities.
The profitability of P&C reinsurance significantly improved for three out of the four companies in 2023, driven by favorable market conditions that included stronger pricing at renewals, enhanced terms and conditions, and fewer natural catastrophe claims.
Munich Re was noted as the exception, reporting a slight deterioration in its combined ratio due to added reserve prudence. Nonetheless, its underwriting margins were among the highest in the group, benefiting from a large and diversified P&C reinsurance portfolio.
SCOR exhibited the most significant improvement in its combined ratio, reflecting the extensive corrective measures the company has implemented over the past two years, notably reducing its exposure to climate-sensitive perils.
The report suggests that the reinsurance pricing cycle, along with the margins of reinsurers, will reach a peak in 2024. Despite a slowdown in risk-adjusted price increases at January 2024 renewals, insurers were able to maintain improved program structures, such as higher attachment points, as well as favorable terms and conditions.
Overall, the financial health and capital adequacy of these leading reinsurers was deemed very strong at the end of 2023, with earnings generation and positive market effects largely balancing out capital used for new business and increased capital distributions to shareholders. The slight improvement in financial debt leverage on average also underscores the sector’s robust financial position, it was suggested.
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