Cat events hit largest reinsurers: Moody’s report

Natural catastrophes and volatile markets weigh heavily on the H1 results of Munich Re, Swiss Re, Hannover Re, SCOR, according to a report on the four largest European reinsurers published by Moody’s Investors Service on August 25.

The report, titled “Munich Re, Swiss Re, Hannover Re, SCOR: Natural catastrophes and volatile markets weigh heavily on H1 results”, said the four reinsurers reported a 47 percent decline in combined net profits for the first half of 2022, reflecting high natural catastrophe claims and weaker investment returns.

“While reinsurance policies have renewed at substantially higher prices this year, claims inflation has partly offset the gains,” said the report “Positively, COVID-19-related life reinsurance claims are diminishing, and rising interest rates will support investment returns over time.

“While falling bond and equity prices resulted in a significant decline in reported shareholders’ equity, capital adequacy remains very strong, confirming the cohort’s capacity to absorbing future shocks.”

The four reinsurers reported combined net profits of €1.9 billion in the first six months of 2022, down from €3.6 billion a year earlier.

“While profit drivers varied by company, two key trends were weaker property and casualty (P&C) reinsurance results because of above-average catastrophe claims, and lower investment results as a result of volatile financial markets,” said Moody’s.

“Life reinsurance results benefited from a decline in COVID-19 claims in the second quarter, in line with expectations. Estimated claims related to the Russia-Ukraine conflict are moderate, but are still subject to uncertainty.”

Growth in the peer group’s P&C reinsurance premiums is accelerating, reflecting both exposure growth and price increases at recent policy renewals.

“Pricing momentum remains positive, but we notice varying approaches to managing growth in property catastrophe insurance, with some remaining bullish but others pulling capacity,” said Moody’s. “Life reinsurance premiums are also expanding, but at a more moderate pace.”

Moody’s said the peer group appears confident that price increases will be sufficient to offset rising claims costs.

“However, we believe upcoming reserve reviews could raise questions about whether reserving levels are sufficient to mitigate broad-based claims inflation, in both short-tail and long-tail lines. Most companies’ catastrophe loss budgets for the rest of the year are also under strain following above average claims in the first half,” it said.