Year-on-year premium growth averaged 13% at 9M 2022, supported by improved pricing for commercial lines and reinsurance business, according to Gallagher Re’s latest global re/insurers’ financial results report.
The report, prepared by Gallagher Re’s Strategic and Financial Analytics team, says that, despite increased loss activity in the third quarter, underwriting performance remained strong through the nine-month period, with an average combined ratio of 96.9%, supported by continued double-digit premium growth, modestly lower natural catastrophe loss activity for the overall period, and a reduced expense ratio.
Realised and unrealised losses on equity/alternative investment assets contributed to lagging ROE performance in 9M 2022, it says, with 7.5% versus 12.4% in 9M 2021. Higher risk-free interest rates and retained profits supported an increase in average European solvency to 228% (FY 2021:226%), but shareholders’ equity declined by 28% during 9M 2022, largely due to a rise in interest rates which resulted in lower market values of bonds and equities held by global re/insurers.
Credit rating agencies’ views of capitalisation fall in between these extremes, the report continues, and ratings are likely to be assessed as the agencies review earnings performance and the impact of rising interest rates on re/insurers’ capitalisation. Consensus 2023 earnings per share estimates increased only marginally (+0.4%) following 9M 2022 results.
The report explains: “The re/insurers which we track reported average year-on-year premium growth of 13% at 9M 2022, with the strongest increase coming from the global reinsurers (+18.2%). Premium increases by Hannover Re (28.9%), Munich Re (25.9%), and SCOR (19.9%) were supported by growth in traditional treaty and structured reinsurance business and benefitted from an FX tailwind due to the strong US dollar (all three report in Euros).”
It continues: “In addition to organic growth, Intact’s 25.4% increase in premium at 9M 2022 was supported by its acquisition of RSA’s Canadian and UK operations. 17 out of the 25 companies in our data set reported year-on-year double-digit premium growth at 9M 2022. Earnings call commentary on pricing was similar to the half-year position; commercial lines continue to benefit from rate increases, albeit at a slowing pace, and margin expansion is typically expected into 2023. Personal lines business is much more challenged with several management teams noting that higher rate increases are needed to outpace claims inflation.”
The level of profitability for the nine-month period was supported by continued double-digit premium growth, modestly lower natural catastrophe loss activity (even with the impact from Hurricane Ian), and a reduction in the expense ratio. Profitability offsets included increases in the attritional loss ratio, partially due to a rise in personal lines loss trends, and prior year reserve development.
“Although not a significant driver of overall nine-month results, some re/insurers established reserves for claims exposure relating to the war in Ukraine. Significant uncertainty remains around ultimate loss estimates, and we will continue to monitor these exposures as claims emergence becomes clearer,” the report concludes.
The report is here.