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European reinsurers grow in H1 as margins improve

European P&C reinsurers have experienced increased top-line growth, underlying margin improvements and a benign level of catastrophe losses in their first-half results.

As the June/July renewal season passed, which is more focused on US business, reinsurers experienced improvements in pricing conditions, albeit marginal ones, after years of rate softening.

Three out of four reinsurers decided to take advantage of better pricing conditions to grow their book, with Hannover Re and Munich Re recording double digit growth in the six months to 30 June.

Hannover Re produced the largest top-line improvement of the group as P&C reinsurance gross written premiums (GWP) surged 19.2 percent to EUR6.5bn ($7.6bn). This compared to growth of 17.3 percent a year ago.


It said the main driver of growth for H1 was from new business written through its structured reinsurance products and in worldwide treaty.

During the June and July renewal season, the carrier grew its renewal book by 16 percent. The North American treaty book saw an overall premium increase of 15 percent, while Hannover Re doubled Australian renewal premium due to new partnership deals. Global cat premium grew 6 percent at renewal.

CEO Ulrich Wallin noted significant rate rises in the Caribbean but emphasised that market conditions remained competitive in the US.

“In the Caribbean, these were rather significant ranging from about 10 percent to 40 percent, but in North America, even on loss-affected business, rate increases were largely contained to single-digit percentages,” he said.

Fellow German reinsurer Munich Re reported first-half GWP of EUR8.8bn – a 13.2 percent increase from the prior-year period mainly due to growth in motor and property treaty business.

This was a bounce back from the 3.7 percent contraction in GWP in H1 2017, when Munich Re had chosen to cancel or scale back some large treaty business, particularly in agricultural, fire and liability.

At the mid-year renewals, Munich Re reported a 41.6 percent increase in premium volume, a figure which RBC analyst Kamran Hossain said showed the reinsurer was “getting more aggressive” in renewals.

The strong increase was mainly due to a large-volume treaty in Australia and profitable growth of reinsurance quota share business in the US, the firm said.

However, just 0.9 percent of the increase in premium volume was attributable to price increases, excluding interest rate effects.

Meanwhile, Swiss Re returned to modest growth in GWP to $9.6bn for H1, up 1.8 percent year on year after contracting 15.5 percent in H1 2017.


It said the reduction in 2017 was due to “a reduction in deployed capacity where prices did not meet Swiss Re’s profitability expectations”. Pricing picked up slightly this year, management said, although not to desired levels.

In the year to date, Swiss Re has grown its book 9 percent at renewal to $14.4bn in premium, and with risk-adjusted rate improvement of 4 percent. The increase in price quality was more pronounced in loss-affected property lines.

Scor was the only carrier in the group to report a dip in GWP for the first half of the year. Compared to the prior year period, its P&C reinsurance GWP fell by 3.0 percent to EUR3.0bn.

However on a constant currency basis, Scor said this translates into a 4.9 percent increase – it said the growth mainly came from business in the US.

In H1 2017, the reinsurer had booked GWP growth of 11 percent.

Scor reported price improvements of 2.9 percent year-to-date, and 2.3 percent for the mid-year renewals. During the same renewal period in 2017, rates were down 0.5 percent for Scor.

For the June and July renewals, Scor grew its renewal book by 22.7 percent. Growth at renewal was partially driven by winning increased shares in US treaty and credit and surety reinsurance, Scor said.

At Scor’s most recent earnings call, Jonathan Urwin from UBS questioned why pricing wouldn’t fall again if the remainder of this year’s hurricane season remained relatively quiet, as it has been so far.

Scor Global P&C CEO Victor Peignet went on to explain that US cat business was not the main driving force behind improving pricing conditions.

“I would say that you’re looking at things through the prism of the US cat business,” he said. “I mean, US cat business is only part of the overall, it’s not driving the overall, and it’s not even driving the US market as a whole.”


Underlying improvement

Reinsurers set about growing their top line as their underlying underwriting performance improved. This was largely due to lower attritional loss ratios, which dropped across the board in the first half the year.

Scor was the best performer here as its accident-year ex-cat loss ratio improved by 5.1 points on the prior-year figure to 55.5 percent, the lowest in the composite. During the same period last year, the company was burdened by the change in the Ogden rate.

Munich Re and Hannover Re reported similar accident-year ex-cat loss ratios, at 63.5 percent and 63.9 percent respectively. Hannover Re reported the greater year-on-year improvement, at 2.1 points compared to Munich Re’s 1.9 points.

Swiss Re does not provide breakdowns of its combined ratio, but its calendar year H1 combined ratio made a 4.5 point improvement to 92.9 percent – the highest change in our coverage on this basis.

This was thanks to a 4.7 percentage point improvement in the Swiss reinsurer’s loss ratio, largely due to lower large losses.

More widely, profitability at European reinsurers also benefited from a largely uneventful natural catastrophe loss period. Cat ratios ranged from just 0.6 percent to 2.3 percent of net earned premiums (NEP).

However, Munich Re’s losses from man-made claims significantly exceeded the anticipated amount for a single quarter.

A large portion of its losses stemmed from one of the largest losses in the construction market – damage to the Ituango Dam in Colombia, which gave rise to a EUR501mn loss. Major losses, which are defined as losses of more than EUR10mn each, came to EUR605mn for the Q2 2018.

It reported a 35 percent slump in its Q2 profits as a result.


Swiss Re defines a major loss at more than $20mn – nothing was reported on the P&C reinsurance side that exceeded this limit.

Similarly, Hannover Re also reported a low cat period as net losses from natural and man-made catastrophes totalled just EUR93mn – or 1.8 percent of NEP. The carrier reported just five major losses for the first half of the year with the largest loss from Storm Friederike totalling EUR31.1mn on a net basis.

Scor also experienced low levels of catastrophe losses with its cat ratio at 2.3 percent for H1 2018. Q2 cat losses stood at 2.8 percent of net earned premiums, but after accounting for the improvement in 2017 losses, this dropped to 0.7 percent.


Q2 man-made losses were unusually high for Scor at EUR142mn. However, this offset the low level of man-made claims in the first quarter of the year.

The relatively quiet first half drove earnings above market expectations for three out of the four reinsurers in our coverage.

Munich Re was the outlier, delivering a much lower-than-expected operating income for its P&C reinsurance division because of the Ituango Dam loss in Colombia, as previously mentioned.

Scor’s EUR207mn second-quarter P&C operating income was well ahead of the consensus estimate of EUR183

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