The latest financial reports from these key players in the reinsurance sector underscore a remarkable resurgence in returns on capital, significantly surpassing cost of capital benchmarks. This impressive feat is attributed to a confluence of factors, including improved pricing strategies, more favorable terms, and a resurgence in investment income.
Following a testing first half of 2022 marked by substantial mark-to-market losses on investments due to rising interest rates, the reinsurers have admirably demonstrated their resilience and adaptability. They emerged from this challenging landscape with newfound vigor.
The positive impact of price adjustments that have outpaced claims inflation, along with a fortified set of terms and conditions in the property and casualty (P&C) sector, has acted as a formidable bulwark for underwriting margins. The cumulative effect of these factors is evidenced by a notable improvement of 4.1 percentage points in the combined ratio, which now stands at a commendable 89.2% for 1H23.
An additional feather in the reinsurers’ cap is their adept management of excess mortality claims arising from the pandemic. This adept handling has propelled life reinsurance profits to levels observed prior to the global health crisis.
Coupled with this success story is the resurgence of investment income, driven by favorable equity market performance and stabilized interest rates. This dual dynamic has collaboratively contributed to a substantial enhancement in overall profitability during the initial six months of 2023.
The robust capital position has been firmly maintained by these reinsurers, who have consistently boasted capital adequacy ratios surpassing the 200% mark. This has been achieved despite considerable strain on capital due to the influx of new business, standing as a testament to their sound risk management capabilities. The interplay between vigorous capital generation from operations and a reduction in financial market volatility has been pivotal in shoring up these impressive regulatory capital ratios.
Renewal activities conducted in the months of June and July in 2023 have exhibited a heightened sense of order compared to the January renewals, indicating sustained momentum in pricing. These reinsurers continue to demonstrate strategic prudence in their capacity allocation, directing their focus towards casualty lines featuring stable premium rates. Moreover, they exercise judicious caution by steering clear of high-frequency and low-severity natural catastrophe coverage.
The European reinsurance landscape, as evidenced by the robust 1H23 results, stands as a compelling narrative of resilience, adaptability, and strategic acumen in the face of adversity.
Speaking about the latest data, Robert Mazzuoli, Director at Fitch Ratings, said: “Profits improved significantly in 1H23 thanks to better pricing, lower claims, more favourable terms and conditions and a rise in investment yields.”
