The four largest European reinsurers reported a 47% decline in combined net profits for the first half of 2022

Moody’s Investors Service has published a report on the four largest European reinsurers - Munich Re, Swiss Re, Hannover, SCOR - which found they reported a 47% decline in combined net profits for the first half of 2022 (H1 2022), reflecting high natural catastrophe claims and weaker investment returns.

While reinsurance policies have renewed at substantially higher prices this year, claims inflation has partly offset the gains.

While falling bond and equity prices resulted in a significant decline in reported shareholders’ equity, capital adequacy remains very strong, confirming the cohort’s capacity to absorbing future shocks.

Cat losses and weak investment returns almost halve H1 profit

The four reinsurers reported combined net profits of €1.9 billion in the first six months of 2022, down from €3.6 billion a year earlier.

While profit drivers varied by company, two key trends were weaker property and casualty (P&C) reinsurance results because of above-average catastrophe claims, and lower investment results as a result of volatile financial markets.

Estimated claims related to the Russia/Ukraine conflict are moderate, but are still subject to uncertainty.

Pricing gains support premium growth

Growth in the peer group’s P&C reinsurance premiums is accelerating, reflecting both exposure growth and price increases at recent policy renewals.

Pricing momentum remains positive, but the rating agency notes varying approaches to managing growth in property catastrophe insurance, with some remaining bullish but others pulling capacity.

Claims inflation and nat cats are key considerations for H2. The peer group appears confident that price increases will be sufficient to offset rising claims costs.

However, Moody’s believes upcoming reserve reviews could raise questions about whether reserving levels are sufficient to mitigate broad-based claims inflation, both in short-tail and long-tail lines.

Most companies’ catastrophe loss budgets for the rest of the year are also under strain following above average claims in the first half of the year.