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Reinsurers maintain profitability as losses dip: Fitch

Lower than expected large loss experiences enabled the four leading European reinsurers to maintain underwriting profitability in the first half, according to Fitch.

Munich Re and Hannover Re reported combined operating ratios above 100%, indicating that if major loss experience and reserve development were in line with expectations they would have made underwriting losses, the ratings agency says.

Three of the four majors reported a modest decline in investment income, while Hannover Re’s was up, driven by private equity and real estate funds.

Reinsurers’ short-duration investment portfolios expose them to diminishing rates of return upon reinvestment, Fitch says.

The four – Munich Re, Swiss Re, Hannover Re and Scor – hold strong levels of risk-adjusted capital and have reported regulatory ratios above the lower ends of their target ranges, well above the regulatory minimum.

Munich Re and Swiss Re reported lower property and casualty reinsurance gross written premium due to their withdrawal from unprofitable lines, while Hannover Re and Scor reported growth of 16.9% and 10.6% respectively.

Hannover Re reported higher demand for structured reinsurance solutions, which offset premium declines in other areas, Fitch says.

Scor benefitted from large contracts written in the US during last year’s second half.

Portfolio-level rate reductions have been smaller than last year, but pricing remains under pressure. Record growth of catastrophe bond issuance and collateralised reinsurance puts a strain on pricing, particularly in US natural catastrophe-exposed lines.