2022 investment results down for German, Swiss re/insurers

Q4 and 2022 investment results out from Allianz, Munich Re, Hannover Re, Swiss Re, and Zurich Insurance Group.

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Macroeconomic turbulence was seen to be the cause of low investment earnings for German and Swiss re/insurers.

Multiple insurance and reinsurance companies have reported their Q4 2022 and year-end 2022 investment portfolio earnings, with losses across the board. Included amongst the list of German and Swiss organisations are: Allianz, Munich Re, Swiss Re, Hannover Re, and Zurich Insurance Group. The re/insurers cited the macroeconomic volatility of 2022 – inflation, recessionary conditions, geopolitical tensions, cat shocks, and the EU energy crisis – as the reason for the low numbers. 

The trend of asset management losses in 2022 when compared to 2021 was steady despite gains elsewhere, such as in underwriting. Many insurers said that even with the difficulty of macroeconomic unpredictability in 2022, conditions had been well weathered and they were hopeful for 2023. 

Lows for Swiss re/insurers 

Zurich Insurance Group said that it saw its highest profits since 2007 despite losses for the asset management arm. The investment arm reported its Net Result on Group Investments as $4.133 million at 2022 year-end, down 42% from 2021’s $7.085 million. Meanwhile, its Net Return on Group Investments was said to be at 2.5%, down 1% from December of 2021.  

Its Total Return on Group Investments was down 10.4 percentage points from 2021 – coming in at negative 11.2% for year-end 2022 compared to 2021’s negative 0.8%. These numbers show lows across the board and significant losses from 2021 to 2022. 

Meanwhile, Swiss Re, the other Zurich-headquartered re/insurer, reported a Return on Investments (ROI) percentage of 2.0% for 2022 – down from 3.2% in 2021 – a result the firm said “reflect[ed] the decline in global equity markets.” The press release focused instead on a positive 2023 position, which it said was targeting a net income of more than $3 billion, supported by attractive market conditions, an expected decline in COVID19 claims, higher interest rates and cost discipline.  

Swiss Re's Group Chief Executive Officer, Christian Mumenthaler, said that 2023 had started on a positive footing, largely due to successful renewals in January and a diversified portfolio. “Our investment portfolio is well-positioned to benefit from rising interest rates, and we do not expect a return of high COVID-19 claims that we had seen over the past years." 

“Insurers will benefit from improved investment returns as their bond
portfolios gradually roll over into higher yields.”

In September 2022, the Swiss Re Institute’s report “Maintaining resilience: the role of P&C insurers in a new world order”, said that it believed insurers would remain resilient despite operating environments fraught with geopolitical fragmentation, supply chain changes, and new regulatory regimes.  

“Higher interest rates are a silver lining for the insurance industry. Insurers will, over time, benefit from improved investment returns as their bond portfolios gradually roll over into higher yields,” the report added, though it remains still to be seen how these predictions will play out in the coming months. 

German re/insurers see investment losses too 

German re/insurers saw similar trends. When it came to revenue growth at Allianz, the insurer said that total revenues increased by 2.8% to €152.7 billion; however, whilst P&C business performance was high – due to strong price and volume effects – this was partially offset by lower performance fees and lower AUM-driven revenues in the Asset Management business. 

"Lower AUM was seen as a result of macroeconomic conditions,
recessionary markets, and the recent Voya transaction."

This lower AUM was a result of macroeconomic conditions, recessionary markets, and the recent Voya transaction – though the company was quick to note that results were “resilient in a challenging environment.” Third-party asset management AUM was reported as €1.635 trillion as of 31 December 2022, which is down by €331 billion from the end of 2021 and €1 billion from the end of the third quarter 2022.  

“A positive impact of €68.2 billion from favourable market conditions was more than offset by unfavourable foreign currency translation effects of €139.6 billion and net outflows of €18.6 billion,” the statement said. Total AUM was €2.141 trillion at the end of the fourth quarter 2022, which the company said “reflect[ed] the trend in the third-party assets under management.” 

Allianz SE Chief Financial Officer (CFO), Giulio Terzariol, said that “the efficiency steps we have undertaken have helped us protect our revenue margin and cushion the impact of market challenges. We look forward with confidence to a strong 2023.” 

Multinational reinsurer Munich Re’s results remained consistent with its competitors – with the company reporting its investment results had decreased to €4.903 million in 2022 from €7.156 million in 2021. It said that regular income from investments amounted to €6.565 million in 2022, up slightly from 2021’s €6.017 million, whilst net gains and losses on disposal excluding derivatives totalled €3.962 million – more than 2021’s €3.182 million. 

The reinsurer attributed these numbers to challenges posed by macroeconomic conditions, including: “impairment losses on equities as a result of falling stock markets”, “impairment losses on fixed-interest securities as a result of the war in Ukraine”, and “increase in interest rates.” 

Looking forward further 

Meanwhile, the Hannover-based reinsurer Hannover Re reported in a statement during its 2023 renewals process that it was hoping for substantially improved prices and conditions in global markets as a result of large losses and the war in Ukraine.  

Whilst the multi-billion-dollar European reinsurer hasn’t yet released its 2022 results, it said in February that “the market environment for renewals was very challenging for all participants” due to “Russia's war against Ukraine, sharply higher inflation, and continued heavy losses from natural catastrophes.” 

" The 'resulting stronger demand among primary insurers for reinsurance
protection' meant certain benefits."

The company said it had a positive outlook going into 2023, due to “significant improvements in risk-adjusted prices and conditions for reinsurers.” Despite the fact that in 2022 market conditions took a toll on re/insurer results, the “resulting stronger demand among primary insurers for reinsurance protection” meant certain benefits – such a tighter overall supply that enabled adjusted prices and conditions. 

In November 2022, for example, ratings agency AM Best revised its outlook on Germany’s non-life insurance segment, which went from stable to negative. “The environment in which Germany’s non-life insurers operate significantly changed in the first half of 2022,” the company said in a statement.  

“Uncertainty brings negative pressure to the segment. [Our] decision to revise the outlook reflects [our] view that economic uncertainty and increased inflation risks will likely pressure German non-life insurers’ growth prospects and profitability over the next year,” it continued.  

Inflation and interest rate increases 

In Fitch Ratings’s “German Non-Life Insurance Outlook 2023” report, published in December 2022, the global ratings agency said it expected inflationary pressure to overweigh higher fixed income yields – a prediction with new resonance after recent interest rate increases in Europe. 

"The global ratings agency said it expected inflationary pressure to
overweigh higher fixed income yields."

As of 8 February 2023, the European Central Bank (ECB) increased the three key ECB interest rates by 50 basis points, with tentative plans to raise them further at its upcoming policy meeting in March and then “evaluate the subsequent path of its monetary policy” going forward.  

The ECB said in a statement that, “keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.” 

Despite concerns over rising inflation and resulting interest rate increases, Fitch’s report said it believed that positively-rated German non-life insurers were “well positioned” to withstand inflation, elevated capital market volatility, and difficulties due to general macroeconomic turbulence, whilst AM Best’s “Market Segment Outlook: Germany Non-Life Insurance” report noted that benefits from diversification could offset weaker results for German companies going forward. If insurers can stay the course, there might be light at the end of the tunnel.