A second consecutive year of robust financial performance in 2024 has bolstered the credit strength of Europe’s four largest reinsurers, positioning them to navigate potentially less favourable market conditions in 2025, according to a recent Fitch Ratings report.
Positive market conditions, sustained underwriting discipline, and strong investment returns drove significant capital generation and reserve strengthening in 2024.
The peer group, Munich Re, Swiss Re, Hannover Re, and SCOR, reported an average return on equity of close to 14% in 2024, slightly down from 17% in 2023, but still indicative of solid financial performance.
Property and casualty profitability reached a cycle peak with the peer group’s average combined ratio improving to a record 86.3%, a 1pp enhancement from the previous year. The improvement was driven by sustained pricing levels and a benign large loss experience.
“All reinsurers exceeded guidance, except for Swiss Re, whose combined ratio deteriorated due to substantial prior-year US liability reserve additions. The four reinsurers took advantage of strong P&C underwriting results to strengthen specific claims reserves as well as build up general prudence in reserves, which is positive for our assessment of reserves adequacy,” the report stated.
Natural catastrophe insured losses, although well above average at USD150 billion for 2024, marked the fifth consecutive year of insured losses exceeding USD100 billion.
Last year’s losses, driven by hurricanes and severe convective storms as well as other medium-sized perils such as flooding in Europe and the Middle East, remained largely within primary insurers’ retention limits and under reinsurers’ budgets, Fitch noted
“The main reason for this is that the vast majority of these losses (85%-90%) were high-frequency, low-severity weather events (called secondary perils) and were absorbed by primary insurers due to higher attachment points. Reinsurers remain significantly exposed to severe catastrophe losses from primary perils, such as hurricanes. The four reinsurers’ natural catastrophe ratios were therefore mainly affected by large-scale events, primarily hurricanes Milton and Helen,” analysts explained.
However, Fitch warned that reinsurers may struggle to maintain their natural catastrophe budgets in 2025. The estimated USD40 billion in losses from hypothetical Los Angeles wildfires would consume approximately 35% of their annual budget.
Reinsurers also found opportunities to strengthen claims reserves and enhance general prudence in reserves, which is positive for Fitch’s assessment of reserves adequacy, according to the report.
Life and health (L&H) performance revealed disparities among the reinsurers, with Munich Re, Hannover Re, and, to a lesser extent, Swiss Re achieving strong results through steady contractual service margin releases, robust new business and in-force margins.
However, SCOR faced losses in the segment due to its review of reserving assumptions, highlighting the volatility that assumptions changes can bring to otherwise more predictable L&H earnings, Fitch noted.
European reinsurers experienced slightly lower risk-adjusted prices for most business lines at January 2025 renewals, driven by capacity outpacing demand. Despite modest price reductions, contract terms and conditions remained stable, with reinsurers maintaining underwriting discipline.
Premium growth was fuelled by increased volumes, particularly in specialty lines and alternative products. Reinsurers remained cautious in US casualty business due to social inflation trends. Increased retrocession availability enabled some to expand coverage while reducing costs.
Fitch maintains a ‘neutral’ outlook for the global reinsurance sector for 2025. Positive factors include healthy normalized underwriting margins, sustained pricing, and robust primary P&C markets.
Comfortable capitalisation buffers and overall strong reserves adequacy provide protection against unexpected earnings volatility. Neutral factors include balanced supply and demand dynamics, and supportive recurring investment income.
“However, the market shows signs of a moderately softening trend due to increasing reinsurance capacity. We anticipate continued rising claims costs, supported by economic inflation, driven by high catastrophe losses from climate change and social inflation, all of which could limit rate softening,” Fitch concluded.
