AM Best: Big four Euro reinsurers’ earnings continue to benefit from hard market
On the eve of Monte Carlo, AM Best has highlighted that continued hard market conditions have driven “strong results” in 2023 and the first half of 2024 for the non-life reinsurance divisions of Europe’s four largest reinsurers.
divisions of Europe’s four largest reinsurers.
In a report, the rating agency pointed to the benefit that Munich Re, Swiss Re, Hannover Re and Scor have enjoyed from continued strong pricing and terms.
But it also noted that the big four on average reported lower returns on equity last year than the average for their US and Bermuda market rivals.
“Europe’s four largest reinsurers benefit from their global reach, strong brands and diversified portfolios. These four reinsurers also benefited from the hard reinsurance market in 2023, with better pricing, terms and conditions, and a general increase in attachment points leading to an improvement in performance metrics compared to 2022,” said AM Best.
It noted that the quartet have continued to report strong non-life reinsurance results in 2024 to date, amid strong pricing and terms as well as below-budget catastrophe and large losses.
The rating agency in its report noted that the big four European reinsurers have good appetites for property cat business following a period of rightsizing their portfolios, increasing attachment points and moving away from aggregate covers and working layers.
“Although there is no sign yet of this discipline disappearing, the mood has shifted somewhat to focus on taking advantage of the good pricing while it lasts,” said the report.
It also noted that the four companies are looking to grow in specialty segments such as cyber, marine and engineering in both insurance and reinsurance in search of greater diversification and “more stable earnings”.
And it highlighted persisting concerns over adverse development in US casualty books, albeit limited to 2014-2019.
“In 2023 and continuing in 2024, all have taken the opportunity, given the strong operating performance trends, to further strengthen non-life loss reserves, mostly incurred but not reported, to increase the confidence level of reserves.
“Reserve strengthening charges have been comfortably absorbed by profit margins in other non-life lines of business,” AM Best continued.
It also commented on the differing retro strategies at the reinsurance giants, with Munich Re using relatively little retro compared to the other three.
“Swiss Re has shifted in recent years to increase its use of retrocession, while significant use of retrocession has long been a feature of Scor and Hannover Re’s strategies,” the report added.
The firm noted that Munich Re, Hannover Re and Scor all reported under IFRS 17 for 2023, while Swiss Re reported under US GAAP, making comparisons between the companies difficult.