European reinsurers’ underwriting margins close to peak, says Fitch

European reinsurers’ underwriting margins are close to peaking as supply-and-demand dynamics become more balanced, according to Fitch.

“This is in line with our belief last year that margins would slightly improve and then peak this year, with property catastrophe market dynamics slowing. It is also consistent with the expectations underpinning our improving global reinsurance sector outlook for 2024,” said the ratings agency.

It says that Europe’s four largest reinsurers – Hannover Re, Munich Re, Scor and Swiss Re – defended the “significant improvements” in programme structure and terms and conditions they achieved in January 2023 at this year’s renewals.

Fitch explains that premium income growth was generally higher than in 2023, driven more by volumes than by price increases. But it says market conditions remain favourable for reinsurers, providing opportunities for further profitable growth, despite rates falling on a risk-adjusted basis in January 2024.

“Risk-adjusted price increases slowed relative to those in January 2023, which were the highest since the early 1990s. This reflected sharply improved technical profitability. Nominal price increases were still high, but they were largely offset by conservative loss trend assumptions. For example, Swiss Re’s nominal price increase was 9% but this was more than offset by an 11% rise in loss assumptions, mostly for inflation and casualty losses. This resulted in a risk-adjusted price change of -2%, compared with +5% in January 2023,” says Fitch.

It adds that the market conditions supported “strong growth” in premium volumes, up an average 8.3% across Europe’s big four reinsurers. This is in contrast to the January 2023 renewals, when premium volumes were broadly flat.

Scor’s premium growth was the highest this time, driven by marine, engineering, energy and alternative solutions.

Fitch adds that reinsurers showed more interest in property catastrophe, speciality lines and tailored solutions at the end-of-year renewals, with more caution over US casualty business due to the effect of high inflation on claims.

“The reinsurers maintained their underwriting discipline in natural catastrophe lines, particularly on attachment points. Rate increases were generally higher than for other lines, particularly for excess-of-loss treaties. Munich Re, Scor and Swiss Re reduced their US casualty exposure, while Hannover Re maintained its level,” says Fitch.