Source: Swiss Re, SCOR, Munich Re and Hannover Re.
The four largest European reinsurers – Munich Re, Swiss Re, Hannover Re, and SCOR – reported a very strong average return on equity of 15.5% in H1 2024, said a new report from Fitch Ratings, albeit slightly down from 20.5% in H1 2023. However, some saw stalls in fixed income returns.
Higher return on investments was supportive of earnings for all reinsurers in the peer group, it said, in the report that was released ahead of the Monte Carlo Rendez-Vous de Septembre in two weeks.
The report said that Munich Re, Swiss Re and Hannover Re, all reported further improvements in earnings from already strong levels in H1 2023, driven by better underwriting results across most business lines too.
A similar report from last year, by Gallagher Re, also said reinsurers saw an upward swing in their H1 2023 investment returns compared to the same period in 2022, which reported a loss in total yield.
The report said that investment results, which represent a large share of operating profits and measured by the return on investment, further improved in H1 2024 from the levels of the previous year.
“Higher reinvestment yields of 4%-5% continued to push up recurring investment yield, the main contributor to returns, well above the 2022 troughs,” it said. “However, recurring yields from fixed-income investments has been getting closer to reinvestment yields, indicating diminishing upside potential.”
The investment results were further supported by higher fair values and related (un)realised gains and losses, it said, which were driven by rising equities partly offset by fixed income as government bond yields rose over the period.
“Benign credit markets lead to a low level of impairments and credit losses,” said Fitch.
High investment incomes have been a recurring theme over the past year for multiple veins of re/insurance. A report from Swiss Re Institute in June said that the higher-for-longer interest rates will significantly boost investment profitability in the life insurance industry as part of a knock-on effect from people switching around their savings and pensions.
The high investment returns compared another Fitch report, from April this year, which said the past year’s high incomes for carriers are likely to have peaked and could begin to weaken. That report analysed major European commercial insurers’ underwriting margins – and found that they would likely peak in 2024 and weaken thereafter.
“Price momentum was increasingly subdued in 2023 and is unlikely to be above claims inflation in 2024,” said Fitch.
In that report, strong investment income was linked to the insurers’ high profitability, which was coupled with underwriting successes. Fitch concluded that Interest rate rises were beneficial for investment income.
Separately, an AM Best report, released this week, said the Big Four on average reported lower returns on equity for 2023 than the average for the US and Bermuda market players.
The report specified that they were helped by hard market conditions.
