In its December review, Fitch Ratings has suggested that the large global reinsurers peer group’s capitalisation remains strong and that earnings have recovered.
Insurers in this peer group include Hannover Re, Lloyd’s, Munich Re, PartnerRe, SCOR, and Swiss Re.
According to the rating agency, capital adequacy of all global reinsurers in the peer group, as measured by its risk-based Prism Factor-Based Capital Model, remained at least ‘Strong’ at end-2021.
The significant improvement in earnings and strong risk-management capabilities helped to offset capital consumption from business volume growth over the year, adds Fitch.
As for leverage, Fitch writes, “We assess the financial leverage ratios of this peer group as low to moderate, ranging between 17% and 31% at end-2021 (‘aa’ to ‘a’ categories).
“This was almost unchanged from 2020 levels, as reinsurers increasingly managed to finance growth in a hardening market environment through retained earnings.”
Fitch highlights that all global reinsurance peers had elevated large losses in 2021 that were caused by natural catastrophes.
Secondary peril events also proved to be costly for the industry, while large losses continued in 2022 from Hurricane Ian, Australian floods, European winter storms and the Russia-Ukraine war.
However, despite the high large loss burden, the profits of this peer group improved substantially in 2021.
The average return on equity (ROE) increased to 8.3% in 2021 from 2.2% in 2020, which is in line with Fitch’s criteria guidelines range for the ‘a’ rating category.
Fitch suggests that better prices and lower non-life Covid-19 claims drove the improvements, though it expects that ROE will deteriorate in 2022 with slight underwriting gains overwhelmed by unrealised investment losses on fixed maturities from rising interest rates that flow through the income statement.
The rating agency considers all peers but PartnerRe to be in the top tier of global reinsurers by company profile and among the largest by premium volumes.
It writes, “A high degree of diversification underpins our assessment of their very strong company profiles. We view PartnerRe’s strong company profile as ’Moderate’ compared with its global reinsurance peers, driven by a moderate operating scale and business risk profile.”
Fitch concludes, “We expect that all reinsurance peers will continue to reserve with prudence and discipline, two key factors that underpin their high reserving standards. The conservatism in reserving levels had increased to counter mounting risks from higher inflation.”
