We’re now in the homestretch and just weeks away from looking back at 2017, with the third quarter poised to leave the biggest impact as far as the industry is concerned. The good news? Not only are things looking up – in terms of rates – but capitalisation remains strong, at least for the major reinsurers in Europe.
More on the good news later; first, here’s how last quarter’s natural catastrophes impacted Europe when it came to reinsurance, as reported by Fitch Ratings:
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- Compared to Hannover Re and SCOR, Munich Re and Swiss Re were more heavily affected by catastrophe losses.
- Losses from hurricanes Harvey, Irma, and Maria and the earthquakes in Mexico represented 12% of Munich Re’s equity for the first half of 2017; 8%, Hannover Re.
- All four reinsurers reported significant deterioration in combined ratios. Although, on a normalised basis, combined ratios remained around 100%.
Now for the positives:
- Regulatory solvency ratios of all four reinsurers remain within their target ranges, with Fitch predicting they will maintain “very strong capital ratios” into the next year.
- Despite the significant hit to earnings, the recent catastrophe events are not likely to bring about rating actions.
- As a result of the third quarter events, the credit rating agency expects an increase in property & casualty reinsurance rates, particularly on US catastrophe-exposed lines.
However, given the excess capital and the potential for new capital to enter the market, Fitch said there is less certainty over more widespread rate hikes outside of US catastrophe-exposed lines. In addition, the extent to which more capital will be raised from Insurance Linked Securities (ILS) markets could influence the extent of rate increases.
“The amount of capital that remains ‘trapped’ by protracted litigation, particularly in relation to hurricane Harvey flooding losses, will also determine the degree that rates rise,” noted the credit rating agency.
Fitch added: “Results were more stable for the life and health businesses, although US mortality recaptures had a negative impact on both Hannover and Munich. However, these recaptures should boost profitability in future periods.”
It also cited the major reinsurers’ strong diversification by geography and business line, saying that losses have been more manageable compared to how smaller firms fared. “Fitch believes that retrocession cover remains in place in the event of significant further catastrophe losses before the end of 2017,” it said.
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