The capitalisation of Europe’s big four reinsurers remains strong, despite a heavy hit to earnings after significant claims from hurricanes Harvey, Irma and Maria (HIM), the Mexico earthquakes and the California wildfires could make Q3 a record year for reinsurers’ catastrophe losses.
Rating agency Fitch said that while all four reported significant deterioration in combined ratios, Munich Re and Swiss Re were more heavily impacted by the catastrophe losses than Hannover Re and SCOR.
Munich Re’s losses from HIM and the Mexico earthquakes represented 12% of the firm’s 1H17 equity, compared to 8% of Hannover Re’s.
However, on a normalised basis, the reinsurers’ combined ratios remained at around 100%.
Life and health business remained a beacon of stability for the big four, unaffected by the recent natural catastrophes, it demonstrated a continuation of more stable results.
Fitch said U.S. mortality recaptures had a negative impact on both Hannover and Munich, but this impact is temporary as these books of business are expected to boost profitability in the future.
P&C reinsurance rates are expected to increase, particularly on U.S. catastrophe exposed lines, as a result of the significant catastrophe events in Q3 2017, however, a widespread rate rise outside of these lines is less likely with the excess capital and increasing competition from the insurance-linked securities (ILS) market.
A key determining factor in the extent that rates rise, said Fitch, is the amount of capital that remains ‘trapped’ by protracted litigation, especially in relation to hurricane Harvey flooding losses.
Despite recent losses, capitalisation remains strong and the regulatory solvency ratios of all four major European reinsurers remains within target ranges.
Fitch expects these reinsurers to maintain very strong capital ratios into 2018, as well as previously planned share buyback or special dividend programmes.