Fitch: Non-life reinsurer composite posts 84.2% H1 CR with NPW up 6%

Non-life reinsurers posted an aggregate reinsurance combined ratio of 84.2 percent in H1 2024, according to new data from Fitch Ratings, with favourable earnings expected to continue throughout 2025.

The cohort of 19 reinsurers tracked by Fitch saw the aggregate combined ratio improve from 85.9 percent in the prior-year period. Only one company posted a combined ratio above 100 percent, as IRB-Brasil Re (103.4 percent) was impacted by major flooding in southern Brazil.

Catastrophe losses added 5.9 percentage points to the reinsurance combined ratio as insured losses remained moderate, down from 6.9 percentage points in H1 2023.

Results in the six-month period also suffered from the collapse of the Francis Scott Key Bridge in Baltimore, although many firms did not specify a loss for this event. Fitch noted that while the loss is likely to be the largest marine insurance claim in history, it should be manageable for the industry at up to $4bn.

Favourable prior-accident year reserve development was slightly reduced at 2.8 percentage points compared to 3.3 percentage points in H1 2023, with most companies reporting releases or modest reserve additions.

Berkshire Hathaway posted the most sizeable favourable development at $734mn (equivalent to 6.6 percentage points on the reinsurance combined ratio).

Elsewhere, PartnerRe reported a higher combined ratio of 97.9 percent (compared to 83.6 percent in H1 2023) due to reserve strengthening in US casualty lines, as well as an increased frequency of medium-sized natural catastrophe events.

“While overall reserve development should remain favourable in 2025, albeit at a reduced level, there are several pockets of adverse development, particularly in US commercial liability, including general liability and auto,” said Fitch.

“As such, we remain cautious that casualty reserve deficiencies could weaken the capital base of select companies.”

NPW up 6% to $72.91bn

Net premiums written (NPW) for non-life reinsurers totalled $72.91bn, up 6 percent year-on-year and reflecting strong performance during the reinsurance renewals as market conditions remained favourable.

Fitch said that premium growth is likely to continue, albeit at a reduced pace as the market becomes more competitive.

Among Europe’s big reinsurers, Hannover Re and Munich Re reported non-life net reinsurance revenue growth of 10 percent and 4 percent respectively, while Swiss Re and Scor reported 1 percent and 2 percent declines respectively due to an increase in ceded insurance revenue.

Fitch added that RenaissanceRe’s NPW increased by a “sizeable” 35 percent in H1, driven by the renewal of business acquired in its acquisition of Validus Holdings from AIG in November 2023.

Hamilton Insurance Group and Aspen Insurance Holdings also posted significant NPW growth of 38 percent and 30 percent respectively, driven by new business, volume growth and rate increases as the duo lean into the hard reinsurance market.

Similarly, Arch Capital Group’s NPW growth of 23 percent was driven by significant growth in property (excluding property cat) and specialty businesses.

Elsewhere, Axis Capital Holdings and SiriusPoint posted slight NPW declines of 6 percent and 4 percent respectively – Axis had increased premiums ceded to a quota share retrocession agreement, while SiriusPoint had lower net premiums in US casualty and Bermuda specialty.

Share repurchases and dividends to continue in 2H24 and 2025

Shareholders’ equity grew 6 percent (3 percent excluding Berkshire Hathaway) in H1 from the end of 2023, driven by increased underwriting and investment income, and equity market gains.

Scor was the only company to report a net loss driven by a charge in its L&H business, which led to a 5 percent shareholder’ equity drop, while Aspen’s decline of 1 percent was due to a sizeable dividend paid.

Fitch noted that Arch Capital had the largest and only double-digit H1 shareholders’ equity rise at 13 percent, due to no common share repurchases as the company retained capital ahead of its acquisition of Allianz Global Corporate & Specialty’s US midcorp and entertainment insurance businesses on 1 August.

The report added that companies will continue to maintain very strong capitalisation as they prudently manage capital, likely continuing to increase share repurchases and dividends in H2 2024 and 2025 as growth opportunities lessen and investors demand return of capital.

“The reinsurance market has reached an equilibrium, with increased capital supply from accumulated earnings meeting higher demand for reinsurance protection from cedants. As a result, Fitch expects market rates to be mostly flat in 2025 and terms and conditions to broadly hold steady,” the report concluded.

“As such, margins will peak in 2024, although reinsurers should continue to produce favourable returns in 2025 comfortably above the cost of capital, as underwriting discipline is maintained. The disciplined environment is supported by limited new capacity entering the market, deteriorating US casualty loss-cost trends from social inflation, and heightened catastrophe and climate change risk.”