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Global reinsurers’ combined ratios improve in Q2

Underwriting margins widened in global reinsurers' P&C reinsurance divisions in the second quarter of 2017, as a benign level of catastrophe losses relaxed combined ratios.

Global PandC re underwriting
The Insurance Insider's composite of global reinsurers posted a Q2 combined ratio of 92.6 percent on a simple average basis for their P&C reinsurance units, 3.3 percentage points better than the same period of last year.

However, the figure did not include Swiss Re, as the carrier only reported its half-year results at a granular level.

The improvement entirely stemmed from each company disclosing a significantly smaller amount of cat losses than in Q2 2016. The simple average cat ratio to net earned premiums (NEP) stood at 3.4 percent, 9.4 percentage points less year-on-year.

The period had a low level of global catastrophes, especially compared to the second quarter of 2016. In Q2 last year every (re)insurer experienced substantial cat losses as they were severely impacted by the Canadian wildfires and the earthquakes in Japan, Ecuador and Taiwan, along with other large losses.

Hannover Re, for example, reported no major catastrophe losses in this year's second quarter, compared to cat losses adding 15.8 points to the combined ratio in Q2 2016.

And Scor's cat ratio was 3.1 percent for the three months to 30 June, 8.9 percentage points less year-on-year.

Meanwhile, contributions from reserve releases declined by 3.0 points to lower the group combined ratio by just 1.7 points on a simple average basis.

However, underlying performances deteriorated for all carriers except Munich Re, with the average increase in the core loss ratio standing at 2.6 points for the quarter.

Global combined ratios



Core ratio worsens

Hannover Re reported the largest core loss ratio increase among its peers for the P&C reinsurance unit, of 7.0 points from Q2 2016 to 67.7 percent a year later.

Hannover combined ratio

This was a major contributor to the segment's combined ratio increase of 80 basis points (bps) to 97.3 percent - the only rise posted in the cohort.

However, the company's management remained confident in the underlying strength of the book. CEO Ulrich Wallin said: "The underlying attritional losses have been reasonably favourable, I would say."

He added that on the specialty lines in particular "we saw improved underlying losses on credit and surety. The same is true on our marine business and also our European business, as well as our facultative business".

At Everest Re, the P&C reinsurance segment posted a 4.1-point increase in its Q2 accident-year ex-cat loss ratio to 56.9 percent.

Everest core loss ratio

"This was an anticipated outcome and was mainly due to the crop reinsurance booked new this year, as well as the increased property pro rata writings, offset by reduced attritional loss ratios on the international book," said CEO John Doucette.

These were also the main drivers in the US reinsurance division's combined ratio climbing by 8.0 points year-on-year to 84.7 percent.

French carrier Scor also recorded a worse underlying experience in its P&C reinsurance division, where the accident-year ex-cat loss ratio increased by 1.1 percentage points to 57.0 percent.


Reserve releases soften

Looking at reserve releases, three out of the four companies posted lower contributions compared to the second quarter of 2016.

Hannover Re's reserve guidance was for around EUR50mn of releases per quarter, but the carrier reported no favourable prior-year developments as it strengthened its Ogden-exposed reserves by EUR291mn in H1.

"We haven't taken the Ogden losses and ran them against our UK motor IBNR reserves, which we could have done, but we chose to reserve them in addition," said Wallin.

Scor underwriting

"In addition to what we have put up on Ogden in the second quarter - which is the EUR290mn, of which around EUR230mn is UK motor excess-of-loss - we still are holding $250mn IBNRs on our UK motor business, which of course we could have used to bolster the Ogden."

Scor did not post any reserve developments in the second quarter, including for its P&C reinsurance unit. It had released 3.1 percent of NEP in the corresponding period of 2016.

And Everest Re completed the trio with its reinsurance book posting a 1.4-point reduction in the reserve releases ratio to 1.1 percent for the period.

However, Everest Re CEO John Doucette said that the Bermuda reinsurance division had benefited from "a sizeable catastrophe reserve release" in Q2 2016, which had contributed to the negative year-on-year comparison.


Expense ratios

Global reinsurers' P&C reinsurance expense ratio movements diverged in the three months to 30 June.

Munich underlying losses

At Munich Re, the Q2 P&C reinsurance expense ratio increased for the second year running, by 2.1 points to stand at 33.4 percent.

The carrier noted that 1.6 percentage points of the increase was due to profit commissions for prior years.

And rival Hannover Re posted a 1.7-point rise in its P&C unit's expense ratio to 29.6 percent for the second quarter - its biggest since at least 2011.

This was mainly fuelled by its acquisition costs ratio, which climbed by 1.9 points to 26.8 percent in the period.

Meanwhile, expense ratio reductions were reported at both Everest Re and Scor.

Everest Re's reinsurance unit had an expense ratio of 27.2 percent for the second quarter, 1.4 percentage points below the corresponding result in 2016.

And Scor posted a minor improvement of 30 bps to an expense ratio of 32.5 percent for its P&C reinsurance unit. The improvement was entirely due to lower operating costs, as its acquisition costs ratio was 20 bps higher at 26.0 percent.

Swiss Re margin flat in H1


Swiss Re H1

This came as decreases on the expense side of the balance sheet counterbalanced an uptick in the loss ratio fuelled by underlying deteriorations.

The P&C reinsurance division's accident-year ex-cat loss ratio increased by 4.6 percentage points to 65.8 percent for the period, taking the corresponding combined ratio to 99.2 percent.

Swiss Re had previously offered an estimate of 100 percent for the underlying combined ratio in the P&C reinsurance unit in 2017 as a whole. CUO Edouard Schmidt maintained confidence in that target.

Offsetting this deterioration were favourable prior-year developments, which increased their contribution from 1.1 percent in H1 2016 to 2.0 percent a year later.

And similar to its peers, Swiss Re's P&C reinsurance unit also reported a lower cat ratio to net earned premiums, with the metric down 2.0 points year-on-year to add just 20 bps to the combined ratio.

Looking at expenses, a 1.4-point decrease in the acquisition costs ratio to 36.5 percent was the main driver behind the expense ratio dropping by 1.6 percentage points to 33.4 percent.


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