The leading European reinsurers, including Hannover Re, Munich Re, SCOR SE, and Swiss Re, have unveiled robust financial results for the first half of 2023, marking a sharp contrast to the challenges faced in the same period last year, according to Fitch’s report titled “European Reinsurers: 1H23 Results.”
The resurgence in returns on capital, far exceeding cost of capital benchmarks, reflects the positive impact of improved pricing, better terms, and resurgent investment income.
In the backdrop of a challenging 1H22, which witnessed significant mark-to-market losses on investments due to rising interest rates, the reinsurers showcased resilience and adaptability.
Price increases surpassing claims inflation, coupled with enhanced terms and conditions in the property and casualty (P&C) sector, bolstered underwriting margins, resulting in a 4.1 percentage point improvement in the combined ratio to 89.2% for 1H23.
The successful containment of excess mortality claims linked to the pandemic led to a rebound in profits for life reinsurance, reaching levels seen before the pandemic.
This, in combination with the recovery of investment income due to favourable equity market performance and stabilised interest rates, contributed to a significant enhancement in profitability during the first half of 2023.
One of the notable achievements is the robust capital position maintained by the reinsurers, with capital adequacy ratios consistently above 200%.
This was achieved despite substantial new business strain on capital, indicating strong risk management capabilities. A combination of vigorous operating capital generation and reduced financial market volatility played pivotal roles in supporting these impressive regulatory capital ratios.
Renewal activities in June and July 2023 unfolded with greater orderliness compared to January, sustaining price momentum.
Reinsurers continued to strategically allocate capacity, focusing on casualty lines with stable premium rates, while cautiously avoiding high-frequency and low-severity natural catastrophe covers. This approach resulted in pronounced price increases for property line reinsurance covers.
“Profits improved significantly in 1H23 thanks to better pricing, lower claims, more favourable terms and conditions and a rise in investment yields,” commented Robert Mazzuoli, Director at Fitch Ratings, acknowledging the strategic moves that underpinned the reinsurers’ remarkable performance.
