Europe's four largest reinsurers reported strong performance in their non-life reinsurance segments in 2023 and the first half of 2024, driven by continued robust pricing and favorable terms, according to a recent report by AM Best.
In contrast, Swiss Re continues to report under US GAAP. For example, the discounted combined ratios reported under IFRS 17 are not directly comparable to the undiscounted combined ratios reported under US GAAP or the previous IFRS 4 standard.
Additionally, comparisons among the IFRS 17 reporters are further complicated by variations in disclosures, measurement models, and other factors permitted by the standard. Despite these challenges, AM Best was able to make some general observations regarding the performance of these reinsurers.
The report highlights that the European reinsurers’ returns on equity (ROEs) have shown more stability over time. Despite SCOR’s recent announcement of a reserve review for its life business, the life books of the European Big Four have generally contributed to stability, reflecting the diversified nature of these companies.
As the hard reinsurance market conditions persist in 2024, the Big Four European reinsurers have shown strong interest in property catastrophe risks. This comes after a period of portfolio adjustments, including increases in attachment points and a shift away from aggregate covers and working layers. While the discipline in underwriting remains, there is now a focus on capitalizing on favorable pricing conditions.
The report also notes that the Big Four are seeking growth in specialty segments such as cyber, marine, engineering, and other lines in both insurance and reinsurance. The aim is to enhance diversification and achieve more stable earnings.
In terms of retrocession strategies, the report points out differences among the Big Four. Munich Re uses relatively little retrocession compared to the others, while Swiss Re has increased its use of retrocession protection in recent years. SCOR and Hannover Re have long made significant use of retrocession.
All four reinsurers participate in the insurance-linked securities (ILS) market, utilizing various forms such as catastrophe bonds, collateralized reinsurance, sidecars, and industry loss warranties (ILWs).
The traditional catastrophe bonds used by these reinsurers primarily provide retrocessional protection for peak risks, including named U.S. windstorms, U.S. earthquakes, and European windstorms.
AM Best also observes the use of reinsurance sidecar structures, such as collateralized quota share arrangements, in addition to traditional retrocession covers. The segment has been among the early adopters of cyber catastrophe bonds.
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