European reinsurers are best placed to underwrite natural catastrophe risks, according to an RBC Capital Markets report.
Reinsurance rates, within nat cat in particular, are likely to remain hard through this year and into next from an unusual dislocation in an otherwise highly commoditised market.
The highly diversified business models and strong balance sheets allow the reinsurers to tap into this opportunity at a time when smaller peers are holding back.
The reinsurers are traditionally very well capitalised, and higher interest rates to date have further bolstered solvency positions. RBC estimates 1H solvency across the big four to be at ratios comfortably above target ranges. This provides ample buffers against potential shocks from financial markets and nat cats, while supporting growth in the current hard market.
Across the P&C space, investor sentiment primarily hinges on companies’ ability to deliver headline earnings. RBC forecasts average ROEs of the reinsurers to improve from 10% in 2022 to 14% in 2024.
The report also estimates an average net operating capital generation of €2.5bn over 2022-24 after allowing for business growth and capital returns.
RBC says it sees the European reinsurers as defensive businesses positioned nicely to tap into a dislocated nat cat market where favourable underwriting conditions are likely to persist in the medium term.
Capitalisation is strong, to withstand potential shocks and support attractive business growth at a time where smaller peers across the industry are more cautious.
