Three out of the four major European reinsurers reported better technical results in Q1 of 2023 despite a high natural catastrophe charge, suggest analysts at Fitch Ratings.
Fitch explains that better pricing and portfolio adjustments made up part of the improvement, however, discounting effects under IFRS 17 also led to a better combined ratio, as interest rates were higher in Q1 2023 than a year before.
“Differences in accounting regimes, chosen accounting options under IFRS 17 and portfolio mix resulted in varying discount effects, which make cross-company comparisons difficult,” Fitch notes.
According to the rating agency, Munich Re was the only reinsurer in Q1 2023 to report a rise in the combined ratio from very low levels in the first quarter of 2022.
The main reason for this was a higher natural catastrophe burden due to a high market share in the Turkiye earthquake.
Meanwhile, investment income improved significantly in Q1 2023 for Munich Re, SCOR, and Swiss Re as low financial market volatility led to very few valuation losses on credit or equity investments. In addition, rising reinvestment yields supported investment income, suggests Fitch.
Hannover Re was the only reinsurer to report a small decline in their return on investment from a very strong level in Q1 of 2022.
Fitch continues, “Better underwriting and investment results resulted in a better than expected improvement in the reported return on equity for all four reinsurers, which rose to 21% on average from 9% in Q1 of 2022.
“Solvency ratios remained very strong as strong operating capital generation offset new business strain and capital management.
“As a result, the capital levels are now at least at the upper end of their capital target ranges, paving the way for future capital repatriation, in Fitch Ratings’ view.”
The rating agency concludes, “The four reinsurers took advantage of very good market conditions and pushed through further price increases during the April renewals, continuing the trend from the January renewals. A shift to excess-of-loss treaties from quota-share treaties led to slower premium growth.”