Fitch: European Reinsurers Confirm Resilience to Catastrophes

As evidenced by European reinsurers' 2017 results, the sector remains resilient to catastrophe losses, said Fitch Ratings. While it took some rate increases for January and April renewals, Fitch reports that with capital typically above companies' target levels, material premium rate rises are not expected in 2018.

The sector's resilience reflects the benefit of business diversification, as profits from life and health business and solid investment returns tended to more than offset underwriting losses on property and casualty business from last year's large catastrophe claims. The four main European reinsurers—Hannover Re, Munich Re, SCOR, and Swiss Re—all posted profits in 2017, despite significant catastrophe losses, and reported end-2017 capital at or above their stated optimal ranges.

SCOR maintained its share buy-back plan, while Munich Re and Swiss Re announced increases to theirs of up to €1 billion, respectively, and Hannover Re maintained its special dividend payments. All four said they would still have capital available to invest in growth opportunities or for further returns to shareholders. The continued abundance of capital in the sector, helped by capital influx from insurance-linked security investors, makes significant rate rises unlikely. Rates have been broadly stable this year, with rises limited and well short of offsetting the declines of the past 4 years.

Large conglomerates continue to show interest in the reinsurance sector in Europe and globally. Japanese telecom company SoftBank is in talks with Swiss Re over acquiring a stake of up to 10 percent, and there could be more deals involving Bermudan reinsurers following recently announced deals between AIG and Validus, and AXA and XL Group.

The Fitch outlook for the global reinsurance sector remains negative, reflecting continued pressure on earnings from competitive pricing, alternative capital, and low investment yields. Combined ratios, normalized for an average level of reserve releases and catastrophe losses, have steadily deteriorated.