Big Four European reinsurer’s discipline to remain, says AM Best

Europe’s four largest reinsurers, Swiss Re, Munich Re, Hannover Re, and SCOR, benefited from the hard reinsurance market in 2023, with better pricing and terms and conditions, and with strong results reported for the first half of 2024, discipline is expected to persist, according to AM Best.

All four of the reinsurers posted strong results in 2023 for their non-life reinsurance segments, driven by continued strong pricing and terms. Life portfolios also improved last year for the cohort.

So far in 2024, the reinsurers have continued to report strong results for their non-life reinsurance operations, as strong pricing and terms persist, and catastrophe and large losses come in below budget.

However, French reinsurer SCOR issued a profit warning in July 2024 related to the performance of its life business, for which the group is conducting an ongoing reserve review.

According to AM Best, the big four European reinsurers have on average reported lower ROEs for 2023 than the average for the US and Bermuda market composite, although the European players’ ROEs do tend to be more stable over time.

“Notwithstanding SCOR’s recent announcement regarding its life business, their life books have generally had a stabilising effect, and the players are very diversified. In addition, unrealised gains and losses on fixed- income investments are typically reported through other comprehensive income (OCI) for the Big Four European reinsurers, but through profit and loss for the US and Bermuda players, and Lloyd’s. This also leads to less variation to both the up and down sides in the ROEs of the European players,” says AM Best.

As the hard reinsurance market conditions have persisted in 2024, Europe’s big four do have strong appetite for property catastrophe business, which follows a period of right-sizing of portfolios, increases in attachment points, and a move 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,” says AM Best.

Further, the four reinsurers are also targeting growth in specialty segments such as cyber, marine, engineering, and other lines in both insurance and reinsurance.

On the non-life side, AM Best notes that there are concerns regarding adverse development in US casualty books for the Big Four European reinsurers, although this seems to be limited to particular years, 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 (IBNR), to increase the confidence level of reserves. Reserve strengthening charges have been comfortably absorbed by profit margins in other non-life lines of business,” continues the rating agency.

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