Fitch Ratings’ risk-based Prism Factor-Based Capital Model provided an assessment for large global reinsurers in a November 2023 peer review.
According to the report, all global reinsurers in this peer group maintained at least a “Strong” capital adequacy rating at the end of 2022. This stability was attributed to improved solvency coverage, bolstered by a reduction in financial market risk and enhanced retroactive coverage.
The financial leverage ratios for the peer group were evaluated as ranging from low to moderate, varying between 16% and 33% at the end of 2022, aligning with the “aa” to “bbb” categories. This stability was largely consistent with the previous year's figures. Reinsurers in this group have increasingly relied on retained earnings to finance growth in a hardening market environment.
In terms of losses, the year 2022 witnessed elevated large losses for most global reinsurance peers, primarily due to natural catastrophes and the impact of high inflation. However, there was a notable decline in excess mortality claims related to the Covid-19 pandemic.
A significant improvement in earnings was reported among reinsurers for the first nine months of 2023. The average net income returns on equity surged to between 18% and 21%. This improvement was driven by lower natural catastrophe claims, better pricing, and robust revenue growth in property and casualty reinsurance.
Additionally, life and health reinsurance sectors reported improved operating margins, primarily due to lower Covid-19-related mortality claims. Investment income also saw a considerable uptick. This contrasted with 2022, when markdowns on investments, high inflation, and elevated large losses resulted in a marked decline in profits, with the average return on equity dropping to 1.2% from 8.5% the previous year.
Fitch Ratings considers all but one of the peers in the top tier of global reinsurers by company profile, with substantial premium volumes. Their “Very Strong” company profiles are supported by a high degree of diversification. However, PartnerRe is viewed as having a “Moderate” profile compared to its peers, owing to its moderate operating scale and business risk profile.
Prudent reserving standards are expected to continue among all reinsurance peers. In 2022, all peers set aside additional reserves to address the increasing risks associated with higher inflation.
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