European reinsurers' 1/1 renewals outcome suggests underwriting margins close to peaking: Fitch

Analysis by Fitch Ratings on the outcome of the key January 1st, 2024, renewals for European reinsurers claims that underwriting margins are close to peaking as supply and demand exhibits greater equilibrium.

Earlier this year, Fitch warned that reinsurers’ underwriting margins are likely to peak in 2024, as the rating agency forecasted that property catastrophe price increases would decelerate when compared to the experience in 2023.

Fitch’s prediction came to fruition, as risk-adjusted price increases slowed at 1/1 2024 when compared with the prior year, which, as highlighted by Fitch, were the highest since the 90s.

While nominal price rises were still elevated, Fitch notes that these were largely offset by conservative loss trend assumptions.

Swiss Re is a good example of this. Within its full-year 2023 results announcement, the reinsurance giant reported a nominal price increase of 9% at the renewals, but with an 11% rise in loss assumptions, mostly for casualty losses and inflation, the company saw a risk-adjusted price change of -2%, compared with a +5% at 1/1 2023.

But while rate rises slowed, Swiss Re, alongside the other large European reinsurers, Hannover Re, Munich Re, and SCOR, all managed to defend the considerable adjustments to programme structures and terms and conditions achieved in 2023.

At the same time, Fitch notes that premium growth was generally higher this year than last, driven more by volumes that price increases. In fact, good market conditions resulted in average premium growth of 8.3% across Europe’s big four reinsurers.

“The renewals showed the reinsurers’ preference for property catastrophe, speciality lines and tailored solutions, with more caution over US casualty business due to the effect of high inflation on claims,” says Fitch. “The reinsurers’ maintained their underwriting discipline in natural catastrophe lines, particularly on attachment points. Rate increases were generally higher than for other lines, particularly for excess-of-loss treaties. Munich Re, SCOR and Swiss Re reduced their US casualty exposure, while Hannover Re maintained its level.”

Fitch also highlights the fact that all four of the reinsurers successfully renewed their retrocession at the January 2024 renewals, aided by more availability of protection and stable or slightly lower risk-adjusted prices.

“We expect strong underwriting profitability to continue supporting the reinsurers’ ratings this year, with price levels and favourable terms and conditions adequately compensating for high claims inflation. Investment income will continue to bolster earnings as reinvestment yields are still above average portfolio yields,” concludes Fitch.