Why global reinsurers are high-fiving right now

For the first time in five years, global reinsurers posted an underwriting profit, albeit a small one.

The average combined ratio of the Top 10 global reinsurers was 99.2% in 2021, significantly better than the 104.9% posted in 2020, credit rating agency AM Best said in a new report, World’s 50 Largest Reinsurers.

“Despite notable Cat losses in 2021, many stemming from secondary perils, the Top 50 on average posted a combined ratio under 100 for the first time in five years,” AM Best said in the report, released Wednesday.

“The Top 15 non-life reinsurance groups had an average combined ratio of 98.5.”

This compares to primary insurers’ lowest-ever combined ratio of 85.2% and a 17% return on equity in 2021, according to the Property and Casualty Insurance Compensation Corporation (PACICC). The previous record was 87.5% in 2006; only in 2003 and 2004 did the industry post higher ROEs than in 2021.

But PACICC president and CEO Alister Campbell said that in the past, the industry’s level of profitability has not proven to be sustainable for P&C insurers. “Every single time that insurers have reported such above-average profits, competitive forces have quickly acted to cut the industry’s return on equity in half — to an average of 7.4% — within two years,” Alister wrote in PACICC’s 2021 annual report.

In the reinsurance space, much of the segment’s premium growth came from pricing increases, owing to strong pricing in 2021, AM Best reported. Total reinsurance gross premium written increased by 9.8% in 2021 to US$353 billion from US$321 billion in 2020.

“Many of the reinsurance companies AM Best rates reported that a third to half of their premium growth could be attributed to pricing increases, as opposed to exposure growth,” said Clare Finnegan, senior financial analyst with AM Best. “Rate increases in many of the reinsurance lines are expected in 2023, although they will vary by line of business and territory.”

However, this growth could be countered by reductions in property Cat reinsurance premium, as many companies have begun to withdraw or substantially reduce their participation in that market, AM Best said.

In terms of ranking, Munich Reinsurance Company held the top spot in the annual ranking of Top 50 global reinsurance groups in 2021, followed again by Swiss Re Ltd. These two global reinsurers account for 24.3% of Top 50 reinsurance gross premiums written last year.

There was some movement among other companies in the latest Top 10 ranking. Notably, Canada Life Re moved up to No. 4 from No. 8, the first time a solely life reinsurance group has ever made the top four.

For this report, AM Best looked at just year-end gross reinsurance premiums written, eliminating any primary premiums. Rankings prior to 2021 had included primary premium that was less than 25% of a reinsurers’ total premium volume.

 

Feature image by iStock.com/Sorapop