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Average ROE of reinsurers in Fitch peer group decreased to 1.2% in 2022

6th July 2023 - Author: Saumya Jain

A group of reinsurers in Fitch Ratings’ universe saw their average return on equity (ROE) fall from 8.5% in 2021 to 1.2% in 2022 as mark-downs on investments, high inflation and increased losses from natural catastrophes drove a significant dip in profits.

Declining reinsurance profitsThe global reinsurance companies in the peer group are Hannover Re, Lloyd’s, Munich Re, PartnerRe, SCOR, and Swiss Re.

The ratings agency notes that the capital adequacy of this peer group, as measured by Fitch Ratings’ risk-based Prism Factor-Based Capital Model, remained at least ‘Strong’ in 2022, while Solvency coverage, for the most part, improved as a result of lower financial market risk and better retrocession coverage.

Most global reinsurers witnessed elevated large losses in 2022 caused by natural catastrophes, exacerbated by the high-inflation environment. Although, excess mortality claims linked to the Covid-19 pandemic declined substantially in 2022, notes Fitch.

The significant decline in the average ROE for the group to 1.2%, driven in part by the large loss experience, is a weak level for the ‘AA’ and ‘A’ rated peer group, explains the ratings agency.

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Fitch notes that during the year, Hannover Re reported strong investment income which has been accredited to its inflation-linked bond portfolio, while Munich Re showed a very strong combined ratio due to the size and diversification of its non-life reinsurance book.

Although, Partner Re recorded net unrealised losses on fixed-income assets of $1.8 billion directly in the profit and loss account.

The ratings agency considers all peers but PartnerRe to be in the top tier of global reinsurers by company profile and among the largest by premium volumes. A greater degree of diversification underpins its assessment of these “very strong company profiles.”

PartnerRe’s strong company profile is viewed as ‘Moderate’ compared with its global reinsurance peers, driven by a moderate operating scale and business risk profile.

In terms of reserving practices, Fitch notes that all reinsurance peers are projected to continue to reserve with both prudence and discipline, two factors that underpin their high reserving standards. The companies have all set aside additional reserves in 2022 to counter growing risks from higher inflation.

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