Looking at the earnings of the major European reinsurers, analysts at Fitch Ratings have said that the hardening market conditions are diminishing but still remain strong enough to counterbalance rising risks from economic inflation and financial market volatility.
And Fitch considers the reinsurers to be well positioned to digest above-average natural catastrophe losses, record-high mortality claims caused by Covid-19, and declining investment income.
The average return on equity of the group rose to 9% in 2021, up from 4% previously, owing to better prices and less pandemic-related non-life claims.
These factors more than offset a higher frequency of natural catastrophe events and a decline in investment income.
However, Fitch notes that a rise in mortality in the US, Latin America, South Africa and India, due to Covid-19 meant the life reinsurance segments of the big four reported mortality claims of €3.5 billion in 2021 in aggregate, up from €1.7 billion in 2020.
And the price increases that all four major European reinsurers secured across large parts of the portfolios up for renewal in January 2022 were smaller than the ones achieved a year before.
In particular, reinsurers showed a stronger interest in US casualty, which led to stagnating prices in this line, with analysts anticipating that this trend will spill over to other lines of business in 2022 and 2023.
Nevertheless, Fitch has maintained its improving sector outlook for the global reinsurance sector, reflecting the expected improvement in the sector’s financial performance in 2022.
Positive drivers will only partially be offset by declining and more volatile investment returns, a higher frequency and severity of natural catastrophe claims, and a pick-up in economic inflation rates, the rating agency says.
Addressing the ongoing conflict between Russia and Ukraine, Fitch added that the exposure of the four largest European reinsurers is “very limited,” both on the underwriting and investment side.