Europe’s top four reinsurers reach ‘peak’ profitability, says Fitch

Europe’s top four reinsurers are “well placed” at the mid-year point to face a potentially less favourable environment in the next 12 to 24 months, according to Fitch Ratings. Munich Re, Swiss Re, Hannover Re and Scor showcased “peak” profitability from P&C in first half 2024 results, the analyst said.

Munich Re’s primary corporate insurer ERGO and Swiss Re’s Corporate Solutions both added strong earnings to group results and made a stable contribution to group earnings, Fitch said.

“Their underwriting performance is very strong and reflects strong underlying business performance,” Fitch said, adding that the primary operations of both groups helped to enhance earnings diversification. ERGO Germany reported a combined ratio of 86.4% for H1 2024, despite losses related to floods in southern Germany, while Swiss Re Corporate Solutions reported a combined ratio of 88.7%.

Return on equity across the top four reinsurers in Europe averaged 15.5%, and remained “very strong”, according to Fitch, despite falling from 20.5% in H1 2023.

While Munich Re, Swiss Re and Hannover Re reported further improvements in earnings driven by stronger underwriting results, earn-through of rate increases and higher investment returns, Fitch highlighted Scor as an “outlier” after it reported a loss following changes to its life and health reserving assumptions.

Across the groups, the average combined ratio improved 1.8 percentage points to 84.2%, which Fitch attributed to sustained prices and benign large losses; the bulk of the nat cat losses remained within primary insurer retentions. Swiss Re reported nat cat losses of less than $100m for the first half, significantly below its budgeted $700m.

Scor and Swiss Re added to reserves, with Swiss Re bolstering nat cat and man-made P&C reserves by $500m and US casualty reserves by $650m, Fitch said.

Reinsurance prices are expected to peak in 2024 along with reinsurers’ margins, Fitch said, as risk-adjusted price increases started to flatten at renewals. June/July renewals saw revenue growth range from -5.4% at Munich Re to 13.5% at Scor with an average growth rate of 6.7% running above 2.4% recorded a year earlier.

“Reinsurers showed selectivity and were not shy of giving up business to preserve profitability, particular in casualty lines,” Fitch said.