European reinsurers experienced significant earnings growth in the nine-month period of 2023, fueled by lower natural catastrophe losses, a better investment result, and strong revenue growth in property/casualty reinsurance, according to a report by Fitch Ratings. Munich Re, Swiss Re, Hannover Re, and SCOR, the four main European reinsurers, reported mid-single-digit revenue growth in property/casualty reinsurance. This growth was attributed to rising prices, higher demand, and an increased risk appetite.
The net income return on equity for the four reinsurers rose by 18 percentage points to an average of 21% in the first nine months of 2023. The higher prices in property/casualty reinsurance were the main driver behind a 6% increase in reported revenues during the same period. However, the growth in revenue was limited due to a shift towards excess-of-loss treaties at the expense of quota-share treaties.
One notable highlight is that all four reinsurers reported natural catastrophe claims below budgets for the nine-month period of 2023. This was largely thanks to improved terms and conditions in renewed treaties, which reduced their exposure to medium-sized natural catastrophe claims. The reinsurers also capitalized on the strong underwriting margins in property lines to strengthen their reserves for liability lines.
Furthermore, the major reinsurers maintained strong capital adequacy by the end of the third quarter of 2023. This was supported by their improved earnings, allowing them to finance a meaningful growth in risk exposure throughout the year. Fitch Ratings expects this strong capital adequacy to facilitate future capital repatriation.
Overall, Fitch Ratings maintains an “improving” fundamental sector outlook for global reinsurance. They expect the sector’s underlying financial performance to continue improving in 2024 due to price discipline and higher reinvestment yields. These factors are expected to support earnings and offset claims inflation.
FAQ
1. What factors contributed to the strong earnings growth of European reinsurers in 2023?
The strong earnings growth of European reinsurers in 2023 was primarily driven by lower natural catastrophe losses, a better investment result, and strong revenue growth in property/casualty reinsurance.
2. Which reinsurers were included in the report?
The report by Fitch Ratings focused on the four main European reinsurers: Munich Re, Swiss Re, Hannover Re, and SCOR.
3. What led to the increase in revenue for property/casualty reinsurance?
The increase in revenue for property/casualty reinsurance was attributed to rising prices, higher demand, and an increased risk appetite.
4. What contributed to the lower natural catastrophe claims reported by the reinsurers?
The reinsurers reported lower natural catastrophe claims due to improved terms and conditions in renewed treaties, which reduced their exposure to medium-sized natural catastrophe claims.
5. How did the reinsurers maintain strong capital adequacy?
The reinsurers maintained strong capital adequacy by leveraging their improved earnings to finance a meaningful growth in risk exposure throughout the year.