Big four reinsurers eye hardening market in 2022 as profits improve despite heavy nat cat

The four largest reinsurers in Europe —  Munich Re,  Swiss Re,  Hannover and  SCOR — have boosted their earnings in the first nine months of 2021 compared to the same period last year despite heavy catastrophe losses as they continue to take advantage of rising prices in a hardening market and higher economic activity.

According to Fitch Ratings’s analysis of the “Big four” reinsurers in Europe, the main driver of this improvement is “significantly lower” non-life pandemic-related claims, supported by strong premium growth and resilient investment income.

“Sharply lower non-life claims related to the coronavirus pandemic more than offset high, and above-budget, natural catastrophe losses,” it said.

The reinsurers’ net profit return on equity improved by more than five percentage points on average in the first three quarters compared to 2020, even as the losses arising from natural catastrophes exceeded the budget expectations of all four, particularly due to the severe flooding in central Europe and hurricane Ida in the US.

Despite large losses, all four reinsurers achieved very strong combined ratios of at least around 95 percent.

All four reinsurers benefited from higher prices in non-life reinsurance and most reported double-digit premium growth in 9M 2021, with the exception of Swiss Re which cut back on property aggregate exposures and provided less secondary peril catastrophe covers.

“The growth ambitions have been backed so far in 2021 by a very strong capital adequacy, which was partially achieved by the issuance of subordinated debt,” stated Fitch.

The agency expects the sector’s financial performance to continue to improve in 2022 on the back of higher prices in a hardening market environment and a continuous recovery in economic activity.

Fitch has reiterated a positive outlook for the sector globally, while noting that the “increase in severity and frequency of nat cat claims driven by climate change will likely force reinsurers to enlarge their nat cat budgets or reduce their risk exposure.”

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