Analysts at AM Best have reported that regulatory solvency ratios among European insurers and reinsurers still remain strong, despite significantly lower earnings last year.
In 2020, premiums for Europe’s 30 largest insurers also fell for the first time in several years, with overall gross written premiums down 0.7% on the figures for 2019.
While around two-thirds of the companies in AM Best’s study achieved some level of premium growth, on an aggregate basis, the growth rate was pulled down by a decline in GWP (in euro terms) among some of the larger players that report in other currencies.
A common driver for the decline in profits last year was the negative impact from the COVID-19 pandemic, driven by provisions for pandemic-related non-life claims, in particular for event cancellation and non-property damage business interruption (BI) claims.
But for European insurers focused on motor business, technical performance was up due to lower claims frequency during the periods of lockdown and semi-lockdown throughout 2020.
Overall, AM Best found that most companies remained profitable despite the pandemic, and with only Lloyd’s reporting a loss after tax for the year.
Alongside this, the 30 largest European insurers continued to benefit from strong solvency capital requirement (SCR) ratios, with more than half above 200%.
Analysts noted that the SCR ratios of a number of groups in the ranking were helped by pandemic-related regulatory restrictions on dividend payments, though not all European regulators took this approach.
Year-end 2020 solvency ratios also benefited from the reversal of the unrealised losses suffered in the first quarter of 2020 as global financial markets recovered following the turbulence seen in March 2020.
Further, the highest ratios tend to be held by mutual groups or those underwriting reinsurance and large corporate risks.
Mutuals do not have to consider return on equity for shareholders, while strong solvency is a competitive advantage for those underwriting reinsurance and large corporate risks.
