Analysts at investment bank Berenberg have described the conflict between Russia and Ukraine as “the final nail in the coffin” for many investors who the firm says have become “increasingly disenchanted with the subsector’s perceived proclivity to lose money.”
Berenberg acknowledged that heavy natural catastrophe losses over the past five years, combined with the COVID-19 losses in both non-life and life reinsurance, have helped to fuel a harder reinsurance market.
But after meeting with investors in the northeast United States, analysts report that investors feel they are yet to find evidence of this in earnings.
Combined with ongoing uncertainty about Russia/Ukraine losses and with hurricane season ahead, Berenberg therefore anticipates that investor appetite will remain muted for the next few months when it comes to reinsurance.
Following their discussions with investors, analysts said that the key points under discussion for reinsurance were strong pricing trends and the potential for increased risk from climate change driving higher growth in reinsurance premiums.
Other topics included balance sheet strength, the drive to limit accumulation risks by reducing aggregate reinsurance covers, and increased risk aversion, which is also seen as a key driver of growth in reinsurance premiums.
Investors generally agreed that Munich Re was the top pick among the reinsurers, but were wary of investing more ahead of the hurricane season, which runs from July to October, and also believe there is significant uncertainty for reinsurers from their exposure to aviation claims in Russia.
US life mortality risk is one key area of investor uncertainty, Berenberg said, with investors still uncertain whether the higher mortality losses in 2021 are just linked to the COVID-19 pandemic or whether there is an underlying trend of higher mortality which will continue.
Composite insurers continued to be popular, with many investors citing as clear attractions the broader diversification of these companies with regards to both business model and balance sheet, as well as their higher liquidity.
“Composites’ allure lies in the following: reduced earnings volatility thanks in part to tighter terms and conditions for risks like cyber and business interruption; high and growing dividends as well as buybacks; and their strategy to monetise life back books, helped by higher interest rates,” Berenberg explained.
