In recent analysis, Berenberg classes Munich Re as the best placed to withstand major hurricane losses, despite the reinsurer typically taking the greatest share of hurricane losses as it remains the most geared to the hard reinsurance market.
Analysts note that the German reinsurer has increased its peak exposures by 22%, but adds that its balance sheet is arguably the best placed to withstand worst-case scenarios.
According to Berenberg, in severe hurricane loss scenarios, Munich Re’s excess capital of $17.2 billion will reduce by only around 33%. Although Hannover’s sensitivity is lower (its excess capital reduces by c23% for the same industry loss), this is mainly due to the firm being underweight in gearing to Atlantic hurricanes.
“Its lower level of absolute excess capital of c$6.1bn means we continue to prefer Munich Re given its ability to withstand losses, redeploy capital and sustain the current dividend,” says Berenberg.
The analysis also shows that French reinsurer SCOR’s sensitivity to excess capital is the highest at around 55% among the reinsurers, despite having the lowest absolute exposure to US wind. This is mainly a function of its relatively lower solvency position, say analysts.
“That said, since our definition of excess capital is based on management teams’ minimal optimal level, not regulatory minimums, we continue to regard all the reinsurers as well capitalised even in peak loss scenarios, as solvency ratios remain very comfortably above the upper end of management’s optimal range,” adds Berenberg.
Interestingly, analysts also note that both Beazley and Conduit Re are among the best placed to withstand hurricane losses as the pair are relatively small in size compared to the large European reinsurers.
Analysts at Berenberg concluded that the London-listed re/insurers could be affected disproportionately by a large US windstorm, as their absolute levels of excess capital are significantly lower, although, their relative exposure to perils will be proportional to their share of industry losses.
