Three of the four major European reinsurers reported better technical results in Q1 of 2023 despite high natural catastrophe charges, suggest analysts at Fitch Ratings.
Fitch explains that better pricing and portfolio adjustments have been part of the improvement, however, the effects of the discount under IFRS 17 have also led to a better combination of ratio, because interest rates were higher in Q1 2023 than a year ago.
“Differences in accounting regimes, chosen accounting options under IFRS 17 and portfolio mix resulted in different discount effects, making cross-company comparisons difficult,” said Fitch.
According to the rating agency, Munich Re was the only reinsurer in Q1 2023 that reported an increase in the combined ratio from the lowest level in the first quarter of 2022.
The main reason for this is a higher natural disaster burden due to the high share of the earthquake market in Turkey.
Meanwhile, investment income increased significantly in Q1 2023 for Munich Re, SCOR, and Swiss Re as low financial market volatility led to very little loss in valuation of credit or equity investments . In addition, rising reinvestment yields are supporting investment income, Fitch suggests.
Hannover Re was the only reinsurer to report a slight decrease in its investment return from the very strong level in Q1 of 2022.
Fitch continued, “Improved underwriting and investment results resulted in better-than-expected growth in reported return on equity for all four reinsurers, which rose 21% on average from 9 % in Q1 of 2022.
“Solvency ratios remain strong as strong operating capital generation offsets new business strain and capital management.
“As a result, capital levels are now at the upper end of their capital target, paving the way for future capital repatriation, in the view of Fitch Ratings.”
The rating agency concluded, “The four reinsurers took advantage of the excellent market conditions and pushed further price increases during the April renewals, continuing the trend from the January renewals .The shift to excess loss treaties from quota-share treaties led to slower premium growth.
