Europe’s big four reinsurers reported an average property and casualty (P&C) combined ratio of 89.2% in the first half of 2023, a 4.1 percentage point improvement on the prior year as the catastrophe load eased, reports Fitch Ratings.
The ratings agency highlights that underwriting margins in P&C improved for three of the reinsurers in H1 2023 as a result of lower natural catastrophe claims and no significant new additions to claims reserves for the ongoing war in Ukraine.
Citing re/insurance broker Aon’s report of insured natural catastrophe costs of $53 billion in H1 2023, which is 47% above the 20-year average, Fitch emphasises the fact Swiss Re, Hannover Re, Munich Re, and SCOR reported nat cat losses below budget, underlining the increased resilience of their property cat books.
It’s worth noting that much of the H1 2023 nat cat activity was related to severe convective storms and were retained more by primary insurers than in the past, owing to the reinsurance industry’s move away from frequency risks in recent times on the back of elevated losses from secondary perils.
As noted by Fitch, Munich Re was the only one of the peer group to report a worse combined ratio due to higher major losses in the period. However, its underwriting margins are the highest due to its larger and more diversified P&C reinsurance book.
At the same time, Hannover Re did not book the actual amount of large losses reported in H1 2023, which remained below budget, but the large loss budget amount instead. Fitch notes that this conservatism added 2% to the combined ratio in H1 2023 and will serve as a cushion for the second half of the year.
“All four major reinsurers took advantage of the very good underwriting conditions to set aside additional reserve buffers. Fitch Ratings views this as credit positive as it improves the companies’ resilience against future shocks related to underwriting, investments or the economy,” says Fitch.
As the P&C performance improved, so too did the life reinsurance segment for the cohort, with profits returning to pre-pandemic levels for all major European reinsurers on the back of a much lower level of excess mortality claims related to COVID-19.
All in all, reports Fitch, this resulted in an average five percentage point improvement in the life reinsurance gross margin for those reporting under IFRS17, and more than this in the operating margin for Swiss Re’s life reinsurance operations.