New analysis from Fitch Ratings says that the capital adequacy of large global reinsurers remained at least ‘Strong’ at the end of last year.
The analysis also found that the group—comprising Hannover Re, Lloyd’s of London, Munich Re, PartnerRe, SCOR, and Swiss Re—had financial leverage ratios of low to moderate, ranging between 17% and 31%.
However, it said that they had been affected by elevated large losses.
Fitch Ratings wrote: “All global reinsurance peers had elevated large losses in 2021 that were caused by natural catastrophes. Secondary peril events, in particular, proved to be costly for the industry. Those reinsurers with significant life reinsurance operations also were negatively affected by excess mortality claims linked to the Covid-19 pandemic.”
It added: “Despite the high large loss burden, profits of this peer group improved substantially in 2021 compared to 2020. The average return on equity increased to 8.3% in 2021 from 2.2% in 2020, which is in line with Fitch’s criteria guidelines range for the ‘a’ rating category. Better prices and lower non-life Covid-19 claims drove the improvements. We expect profits to consolidate in 2022 as further price increases broadly offset inflationary pressures.”
The firm said that it considered all in the peer group excepting PartnerRe to be in the top tier of global reinsurers. It said that the firm company profile was ‘Moderate’, and was driven by a moderate operating scale and business risk profile.
Last month, Fitch Ratings said that all the global reinsurers it measures in its Prism Factor-Based Capital Model remained ‘strong’ in terms of capital adequacy at the end of last year.
The firm partly attributed this to a ‘significant improvement’ in earnings and strong risk-management capabilities that helped to offset capital consumption from business volume growth.
The only firm that Fitch considered not to be in the top tier of global reinsurers among its peers was PartnerRe.
However, it did say that it expected all reinsurance peers to ‘continue to reserve with prudence and discipline’, which it said were two factors that underpinned high reserving standards and would help to counter mounting risks from higher inflation.
