Thursday, May 24, 2018

Reinsurers bounce back

Reinsurers have made a surprisingly strong start to the year. After one of the toughest quarters in recent memory at the end of 2017 and the disappointment of continued pricing pressure at renewals in January and April, results have improved.

Competition for commoditised risks from insurance-linked securities (ILS) has driven reinsurers to focus more on the value-added side of the business — and buyers are responding positively to the idea of using reinsurance as a way to manage capital and support earnings.

The result is some strong earnings among the big reinsurers for the first quarter. Munich Re booked reinsurance profits of €750 million, up from €466 million during the same quarter last year — a 60% increase that it attributed to low major-loss expenditure and the good performance of its underwriting business.

Scor earned a group net income of €166 million, an increase of 18.6% compared to last year’s €140 million, while Hannover Re’s operating profit climbed 8.5% to €433.9 million, up from €399.9 million. Berkshire Hathaway posted a US$130 million pre-tax profit on its property-casualty reinsurance business, up from a US$410 million loss in the first quarter of 2017, and a US$96 million profit on the life-health side, up from US$73 million last year.

Profit growth at Swiss Re was less dramatic. It reported reinsurance net income of US$345 million on the property-casualty side, up slightly from US$321 million last year, and US$201 million on the life-health side, up from US$193 million last year.

Across the board, premium volumes were up by close to 10% and the average return on equity was 11.8%, with most of the big reinsurers noting that the quality of their renewed portfolios had improved.

Renewals in April were mostly flat, once again, though this was less of a disappointment than in January. The spring renewals are mostly focused on Japan, Korea and India, which continue to be attractive markets with plenty of competition.

“Traditional reinsurers continue to show strong appetite for this business and buyers in these markets found ample capacity to meet their risk transfer needs and to support geographic and product growth aspirations,” said Aon in its mid-year renewals report.

However, some reinsurers are forecasting more disappointment for the rest of the year.

“Sadly, discipline and good sense is receding in the market, so for the rest of the year growth in big-ticket business will be more measured,” said Bronek Masojada, chief executive of Hiscox, which took advantage of rate improvement in loss-affected US property catastrophe risks to book premium growth of 42% for the first quarter.

The industry’s full-year 2017 results released during the first quarter certainly inspired pessimism, with many analysts deeply concerned about the continued influence of ILS funds, which have not lost their appetite after the hurricane losses in the US.

“An increasingly worrying trend is the deterioration of results in virtually all non-natural catastrophe lines and the limited reserve release now available from earlier years,” said James Kent, global chief executive of Willis Re, in a report on the April renewals.

Kent noted that many reinsurers and specialty carriers are stepping up efforts to reshape their portfolios, exiting unprofitable lines of business and implementing cost-saving programmes.

It remains to be seen if the slight bump in results during the first quarter is a result of these efforts or reflect a more fundamental shift.

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