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European reinsurers disciplined in a tough market: Fitch

17th March 2017 - Author: Luke Gallin

Large European reinsurers continued to show discipline in a very challenging marketplace and broader economic environment in 2016, as reserve releases declined and companies reported a reduction in renewed business, according to the latest European reinsurance market report from Fitch Ratings.

The profitability of European reinsurers remained pressured throughout 2016, with Fitch revealing that both Hannover Re and Munich Re’s combined ratios for the year, on a normalised basis, exceeded 100%, with SCOR and Swiss Re edging ever closer to unprofitability.

However losses, although the highest for four years remained lower-than-expected and combined with reserve releases Europe’s big four reinsurers reported strong capitalisation and a profitable year, with increasing discipline evident across the sector.

A trend of the softening reinsurance market environment has been aggressive reserve releasing by some firms in order to offset dwindling returns on both the underwriting and investment side of the balance sheet. With low interest rates, intense competition and a resultant abundance of capacity, and the relatively benign loss-experience driving persistent rate declines across the majority of business lines.

“However, the quantum of reserve releases appears to have reduced compared with 2015, for Swiss Re and Munich Re, with both reporting significantly lower reserve releases in 2016,” says Fitch, suggesting a more disciplined approach to reserve releasing in more recent times.

“Most major European reinsurers reported an overall reduction in renewed business, supporting the view that the market remains disciplined, although strategic growth in key markets was still targeted,” added Fitch.

As the softening market intensified and rates continued to fall at the most recent renewal period, albeit it at a slower pace than previously, more and more companies spoke of an increasing need to walk away from business that was simply priced too low.

It’s promising to see and positive for the development of the marketplace through the ongoing soft marketplace that some reinsurers are practicing disciplined underwriting and more prudent reserving techniques, traits that will likely become increasingly important and valuable as the market continues to soften in the months ahead.

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