Capital adequacy among global reinsurers remained strong at the end of last year, according to a new note from Fitch Ratings.
The firm says that a significant improvement in earnings and strong risk-management capabilities helped to offset capital consumption from business volume growth over the course of the year.
Authored by Robert Mazzuoli and Brian Schneider, the firm assessed financial leverage ratios as ‘low to moderate’, ranging between 17% and 31%, values basically unchanged since 2020.
However, the authors observed that many global reinsurers suffered elevated large losses in 2021 that were caused by natural catastrophes, along with costly secondary perils.
They wrote: “Despite the high large loss burden, profits of this peer group improved substantially in 2021 compared to 2020. 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. Better prices and lower non-life Covid-19 claims drove the improvements.
“We expect profits to consolidate in 2022 as further price increases broadly offset inflationary pressures.”
The reinsurers Fitch looked at for this note were Hannover Re, Munich Re, PartnerRe, Lloyd’s, SCOR, and Swiss Re. All apart from PartnerRe were considered by Fitch to be in the ‘top tier’ of global reinsurers because of a high degree of diversification.
PartnerRe, meanwhile, was classed as ‘moderate’, this being driven by a ‘moderate operating scale and business risk profile’.
