The high costs of natural catastrophes from secondary perils in H1 2024 highlights the burden has shifted from reinsurers to primary insurers, but despite this, losses are still expected to be within each insurer’s budget, according to Berenberg.
In the second quarter of 2024, insurers Allianz, AXA, Generali, Talanx and Zurich have experienced high nat cat costs, relative to Q1 2024, with, in the case of Allianz, additional costs relating to the New Caledonia riots in May.
This, according to Berenberg analysts, “highlights a key point, which is that the burden of nat cats has shifted from the reinsurers to the primary insurers in the past 18 months.”
And this has happened as reinsurers raised retentions, and all but eliminated the provision of aggregate treaties – a catch-all cover which until 2022 meant that much of the cost of secondary perils such as wildfires and severe convective storms was borne by the reinsurers, analysts explained.
However, since these talks with the insurers, the market estimates for nat cats such as the German floods have gone down, from an initial estimate of €3bn, to now €2.5bn.
Attritional loss ratios have also improved, mainly benefited by continuing rate rises in commercial lines, and accelerating rate rises in personal lines.
As a result, Berenberg estimates that the Q2 2024E combined ratios are only modestly above their Q1 2024 levels.
Further, the relatively benign market volatility in Q2 2024 means that solvency ratios are still well above 200% for all the composite insurers, which analysts believe could benefit future buybacks.
“Our top pick remains Allianz thanks to the scale of its non-life operation, which gives it more economies of scale. However, in the shorter term, until Allianz unveils its new three-year plan on 10 December, we believe that AXA offers more upside, particularly as we believe it should continue to bounce from its June French election lows,” said Berenberg.
Analysts also noted that while the pricing momentum in commercial lines might be slowing, overall the main drivers of the composite insurers are all positive.
“Commercial lines pricing is overall still above loss cost inflation, personal lines pricing is accelerating particularly in German motor and in Italian nonmotor, investment income is continuing to rise as new money yields are still above portfolio yields, and benign markets means there is limited threat from impairments,” they stated.
Despite high nat cats in the first half of the year, they are still lower than H1 2023, with Gallagher Re estimating H1 2024 global nat cat losses at $61bn, down on the $74bn from the same period the year prior.
Berenberg noted: “While these are high levels in absolute terms, and the burden has shifted more to primary insurers, we believe that overall in H1 2024 nat cats were within each insurer’s budget.”
Finally, analysts believe that it is a strong reinsurance pricing what is keeping price competition in check.
Analysts concluded: “We believe that the strong pricing in both commercial and personal lines in Europe is mainly due to the discipline of a continuing hard reinsurance market. We believe this is because the combination of limited reinsurance supply and high nat cats is forcing mutual insurers to raise pricing sharply.
“As a result, price competition in personal lines is down sharply: this was reflected in rate rises at HUK Coburg (the mutual which is Germany’s number one motor insurer) of 12% (we estimate) at the January 2024 renewals, with we believe another near 10% rate rise likely in January 2025.”
