The decline in profits for four major European reinsurers is down to varying factors, says Fitch Ratings.
The agency said that the Q! 2022 results for Munich re, Swiss Re, Hannover Re, and SCOR saw an average return on equity to 2.4% in 1Q22 from 7.4% a year ago.
The firm also named rising interest rates in Europe and the US that helped push solvency ratios higher in 1Q22, more than offsetting the strain on capital from new business growth. It also said elevated natural catastrophe claims, a first round of booked reserves for the Russia–Ukraine war, high Covid-19 mortality claims, and valuation losses for credit and equity investments were contributing factors.
Fitch Ratings wrote: “Investment income declined significantly in 1Q22 for Munich Re, SCOR SE and Swiss Reinsurance Company Ltd as negative valuation adjustments on credit and/or equity investments reduced investment income. In contrast, the strong performance of inflation-linked bonds helped maintain strong results at Hannover Rueck SE. Reinvestment yields rose notably and should support future investment income. Elevated Covid-19 mortality claims in life reinsurance also added to a weaker return on equity for all four reinsurers, which declined to 2.4% on average from 7.4% a year ago.”
It added: “Solvency ratios rose further in 1Q22 due to rising interest rates in Europe and the US, which helped to offset the strain on capital from new business growth. Hence, the capital levels of the major four are now at least at the upper end of their capital target ranges, paving the way for future capital repatriation, in Fitch Ratings’ view.”
Going forwards, Fitch Ratings said that it expected business underwriting margins to stabilise over the rest of 2022.
