Fitch Ratings recently affirmed its stable outlook and ‘AA-‘ Insurer Financial Rating (IFR) for European reinsurance giants Swiss Re and SCOR, reasoning that the scale of the companies allows them to better withstand current market challenges.
The rating agency recognised that both companies currently had very strong business profiles within the global reinsurance industry, and pointed to their consistently strong financial performances, strong capitalisation, and consistent operating results.
The business diversification afforded by the scale of the companies was also recognised as a positive rating factor by Fitch, with both reinsurers writing a combination of property & catastrophe (P&C) and life reinsurance, as well as primary business.
Fitch’s commentary also implies that smaller or more specialised reinsurers may find it more challenging to remain competitive and profitable given current market conditions.
This strong diversification allowed both Swiss Re and SCOR to withstand 2017’s large catastrophe losses, with Swiss Re’s P&C combined ratio growing to 112% and SCOR’s to 103.7%, 14.9% of which was due to catastrophe losses.
Although these catastrophe losses have caused rates to increase for property classes in loss-affected markets, rate improvement has been more modest elsewhere, resulting in a challenging operating environment.
Nevertheless, Fitch remains confident that Swiss Re, SCOR, and other large reinsurers will prove resilient to these conditions due to their diversified business profile and generally prudent underwriting policies.
Life reinsurance business also continued to grow profitably for both companies over 2017, and Fitch suggested that larger reinsurers remain best placed to benefit from the strong investment returns and emerging market opportunities experienced over the year.
Both companies also reported strong solvency at end-2017, with SCOR at a Solvency II coverage of 213% and Swiss Re reporting a Swiss Solvency Test coverage of 262%.