Fitch Ratings has reported that the four major European reinsurers have proved convincingly resilient to the record-breaking catastrophe losses of 2017, with companies posting overall profits for the year and combined ratios expected to improve in 2018.
With the exception of Hannover Re, the European reinsurers (SCOR, Munich Re & Swiss Re) all recorded losses on their property and casualty (P&C) re/insurance underwriting, but offset these with strong performance from life and health lines and solid investment returns, explains Fitch
Nevertheless, profits for 2017 were significantly down from 2016, and although European reinsurers reported a modest improvement in rates, they were not significant enough to make up for falling rates over the last four years.
Fitch expects rate improvements to remain muted in the absence of further catastrophe losses, given the trends of the January and April renewals.
‘Normalising’ 2017’s results for comparison with previous years, Fitch found higher combined ratios to be indicative of lower reinsurance prices feeding through to results, which has made it increasingly difficult for reinsurers to write business at a profit margin that exceeds the cost of capital.
However, Fitch also predicted that combined ratios would improve over 2018 as rates continue to rise.
Fitch also found the diversification provided by life re/insurance to be an essential mitigating factor for European players in 2017, as its high performance shielded companies from P&C losses and enabled them to report positive net income for the year.
Similarly, all four major European reinsurers were supported by their high-quality investment portfolios and healthy capital positions, which remain in excess of regulatory minimums and within stated optimal ranges.
