Analysts at Fitch Ratings are forecast further improvements in underlying technical margins and pricing in non-life reinsurance for the largest European companies, following favourable trends in Q1.
All four major European reinsurers reported improved margins in non-life during Q1, Fitch notes, as they increased prices and negotiated better terms and conditions.
Reported combined ratios remained below 100% despite substantial natural catastrophe claims, such as from winter storm Uri in Texas.
This resulted in an improvement of the average return on equity to 7.4% in Q1 2021 from 5.6% in Q1 2020, while normalised combined ratios are improving towards 95%.
Fitch anticipates that hardening market conditions will continue through summer of this year, meaning there is potential for further improvements to performance.
Results will also be boosted if pandemic losses in non-life reflect the sharp drop that they saw during Q1, despite ongoing lockdown rules in many countries.
Fitch sees this trend as a “testament to the prudent reserving standards in the industry” as the very high levels of incurred-but-not-reported claims reserves that had been built up in 2020 were more than sufficient to cover additional reported claims in Q1 2021.
In contrast, excess mortality claims recorded in life reinsurance exceeded expectations for all four major European reinsurers as the peak in US mortality coincided with additional claims recorded in South Africa and Latin America.
All four major European reinsurers also took advantage of the very good market conditions and grew their non-life books that were up for renewal at 1 April 2021 by 7% to 20%.
In particular, Swiss Re and SCOR expanded their business more strongly than last year, catching up with competition that had grown their books already in 2020.
April renewals typically focus on Asia, and the reinsurers grew their business in Japan and India, although price increases remained in line with the ones observed at 1 January, and Fitch expects similar price increases this summer.
