Europe’s ‘big four’ reinsurers improve results despite nat cat losses, says Best

Europe’s ‘big four’ reinsurers – Munich Re, Swiss Re, Hannover Re and SCOR – benefited from material premium rate increases across many P&C business lines in 2021, but were heavily impacted by nat cat losses in 2021, according to AM Best. The ratings agency noted that a return on equity of 8.1%, up from 2.4% the previous year, illustrates the big four’s improved performance in 2021, but added that natural catastrophe losses were higher in 2021 than in 2020, and exceeded the groups’ considerable budgets for such losses. Three of the European big four continue to target growth in property catastrophe business, as other global reinsurers retrench from it. “While a number of US and Bermudan reinsurers have stated their intention to curtail their property catastrophe exposure, or even exit this line altogether, Munich Re, Swiss Re and Hannover Re have a more positive view on the price adequacy and growth opportunities in the property catastrophe reinsurance segment,” said Best. It said the three reinsurers are aiming for targeted growth in this business, including in the US, supported by hardening conditions and premium rate increases, but with limited appetite for frequency layers and aggregate covers. However, it has announced that it plans to reduce its natural catastrophe exposure for the US and overall. Best explained that the big four are also aiming for growth in specialty segments (both insurance and reinsurance), such as cyber, marine, credit and surety, where price increases achieved since 2018 allow for good returns. Best added that the growth in these lines is not solely opportunistic (because of good pricing) but also aimed at achieving increased levels of diversification and so lead to more stable earnings. Best said that Lloyd’s, ranked as the seventh-largest reinsurer in 2021 and the fourth-largest when life premiums are excluded from Best’s ranking, is facing significant headwinds from inflation and conflict, despite improved underlying results. Last year was the first year of profitable underwriting for the reinsurance segment since 2016, thanks to favourable market conditions, as well as the robust performance oversight by the Corporation, said Best. Total reinsurance premiums written by Lloyd’s increased by 18% to £14.3bn, following a 7% rise in the previous year. Property reinsurance, which accounts for approximately half of the reinsurance segment, reported an 11% increase in GWP, while casualty reinsurance, which accounts for almost one third, grew by 34%. But Best warned that Lloyd’s’ overall performance remains exposed to potential volatility, due to its exposure to major catastrophe events, and social inflation has resulted in increased uncertainty regarding reserve adequacy. “Given the higher frequency and severity of loss activity in recent years for property reinsurance business, syndicates have shown greater focus on client selection and aggregate deployment, resulting in significant rate increases. For casualty reinsurance, the market has witnessed considerable tightening in policy coverage and price strengthening,” said Best. However, it added: “The conflict between Russia and Ukraine has produced material claims uncertainty, particularly for specialty underwriters. At the same time, high general inflation has the potential to impact all lines of business, especially those with longer claims tails or those that are more affected by global supply chain disruption.”

Europe’s ‘big four’ reinsurers improve results despite nat cat losses, says Best

While Lloyd’s improves but faces headwinds from inflation and conflict

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