The industry losses from hurricanes Harvey and Irma are not expected to be sufficiently high to drain capital from the major four reinsurance firms and stop them buying back shares or paying dividends, analysts at Deutsche Bank said.
The analysts estimate that the pre-tax losses for the big four will stack up as, EUR 1.2 billion for Munich Re, EUR 1 billion for Swiss Re, EUR 400 million for Hannover Re and EUR 200 million for SCOR.
Based on using the remainder of their catastrophe budgets and also any offset created by the expected winding back of the Ogden Rate change in their calculations, the analysts don’t think the capital return trend in reinsurance will stop, reflecting the fact that despite the two hurricanes creating somewhere up to $100 billion of market losses, they will only be an earnings event for the majority of players in the sector.
Deutsche Bank’s analysts see a hit to Munich Re and Swiss Re’s full year earnings, but nothing that will stop buybacks or dividends from progressing as planned, despite the pair taking the largest share of losses.
All of the major reinsurers had unused catastrophe budgets remaining, which the hurricanes will soak up but the buffer will be enough to help protect capital, as these budgeted amounts are designed to do.
The analysts estimate that as much as 66% of the Ogden Rate hit could be unwound, resulting in more capital being freed up at the reinsurers to help manage the catastrophe claims.
They call Harvey and Irma combined only a “minor earnings event.” How that will affect rates, if the impact is so minor, remains to be seen. It could be that the impact to alternative capital of locked collateral may be a bigger factor in driving any rate increases at January renewals.
“We expect Munich Re and Scor to continue their current buyback programs and expect Swiss Re to kick off its buyback in November. With this we also believe that dividends esp. at Munich Re, Swiss Re and Scor are further set to grow as a function of the buybacks,” the analysts explained.
