The big four European reinsurers’ profitability has been kept afloat by a first half of 2017 that’s seen catastrophe loss levels at well below the ten-year average, but Fitch ratings warned that under normal circumstances Munich Re and Hannover Re would have made losses.
On a global scale, 2017 has been a mild year for insured catastrophe losses so far, with these to a large extent impacting only the U.S. market, and this has meant reinsurers walking the profitability tightrope have been helped along in a market where on a normalised basis Munich Re and Hannover Re’s combined ratio levels would be over 100%, said Fitch.
SCOR SE and Hannover Re both reported growth of 16.9% and 10.6% respectively, at constant exchange rates.
For SCOR this was down to the firm being able to ride the earnings coattails of 2H16’s large contracts written in the U.S., while Hannover Re’s boost came from increased demand for structured reinsurance solutions offsetting premium declines in other areas.
Fitch said returns from life and health reinsurance remained largely stable; “SCOR and Swiss Re both reported strong Life and Health underwriting performance, with significant new business opportunities, particularly in the Asia-Pacific region.
“Munich Re and Hannover Re,on the other hand, reported results slightly below their expectations, both citing worse-than-expected developments in parts of their U.S. mortality books, amongst other factors.”
The major European reinsurers hold very strong levels of risk-adjusted capital based on both Fitch’s Prism Factor Based Model assessment and their regulatory-assessed solvency coverage.
All four reported regulatory ratios well above the minimum requirement and just surpassing their lower target ranges.
2017 has been a challenging year for return on investments for Europe’s big four, with three of the four major European reinsurers reporting modest investment income declines.
Hannover Re was the exception, despite seeing lower turnover rates for its fixed income portfolio, the firm made investment earnings from private equity and real estate funds.
Reinsurers’ suffered losses from short-duration investment portfolios – where these exposed them to diminishing rates of return upon reinvestment, said Fitch.
In 2017 so far the European giants have seen their pricing come under further pressure with record levels of catastrophe bond issuance and collateralised reinsurance upping the supply/demand ratio, particularly for U.S. natural catastrophe exposed lines.
The earnings of Europe’s big four, Munich Re, Swiss Re, SCOR, and Hannover Re were given a lucky boost in H1 2017 thanks to well below average catastrophe losses at just $44 billion just 37% of last year’s $117 billion for the same period, according to Swiss Re’s preliminary sigma estimates.
However, if major loss experience and reserve development had been in line with expectations, some of these reinsurance giants would have made underwriting losses, so with 2017 being far from over the profitability pendulum could still swing both ways.
