24th April 2024

Litmus Analysis’ Reinsurance Renewal Roundup – January 2024

An examination of the P&C treaty renewals of the big four European reinsurance groups[1]

Data from January 2024 renewals suggest that recent measures to improve the quality of their reinsurance book may be contributing to a more differentiated approach to managing risk appetites and underwriting strategies in the current business environment

1/1 premium rate and volume outcomes suggest a more distinctive approach to risk amongst the ‘Big Four’

Paul Galpin-                                                                                                                    Alison Cheal-
Senior Consultant                                                                                                        Consultant Analyst

 

Market bellwether

According to data from A.M. Best, the big four European reinsurance groups (Hannover Re, Munich Re, SCOR and Swiss Re) account for some 40% of global P&C reinsurance premiums and are a bellwether for the market as a whole. Their January renewals encompass close to half of their traditional treaty reinsurance premiums.

These four groups provide greater detail than their Bermudian and international peers, their experience acting as a useful indicator for the market as a whole. In addition to commenting on their individual experience, Litmus uses their disclosures1 to present a composite picture.

Rate and premium development at 1 January 2024 renewals

Source: company disclosures, Litmus Analysis


[1] The data for this report were sourced from the press releases and supporting financial supplements recently published by each of the four cohort members in which they specifically addressed January 2024 renewals

Key theme

  • The chart above shows each reinsurer achieving varying levels of improvements in risk-adjusted pricing, and actively growing premium volume through the January 2024 renewals. However, the quantum of price and volume growth achieved varied considerably, with Swiss Re reporting the most substantial increase in risk-adjusted pricing and SCOR achieving the strongest overall portfolio growth. All showed an appetite to leverage strong demand for reinsurance capacity to increase exposure in preferred lines and geographies, while discontinuing business that failed to meet internal risk-return hurdles; all expressed cautious optimism for remaining 2024 renewals.

Underlying trends

  • All four companies showed an increased appetite for Nat Cat exposure, citing improvements in risk-adjusted pricing in the face of strong buyer demand
  • Proportional business continued to frustrate, most reinsurers choosing to focus more on non-proportional exposures given their more favourable pricing environment
  • With all four reinsurers focused on selective growth, aggregate premium volume grew by 7% across the cohort, compared with 2% reported in January 2023
  • Risk-adjusted pricing continued to improve overall, with further price increases achieved in many lines and territories that at least matched underlying loss trends and inflation
  • Casualty, however, proved a less attractive class, with reinsurer risk appetite reflecting mixed pricing dynamics, both by class and geography
  • With historic portfolio quality issues across the cohort seemingly now addressed, cohort members appear committed to a more discriminating, and perhaps more individually nuanced, approach to underwriting
  • Each of the companies expects favourable trends in risk-adjusted pricing and terms & conditions to be sustained through 2024, and remain committed to maintaining portfolio quality

 

(Risk-adjusted price changes are as reported by the four companies. As such, the figures stated reflect each company’s assessment of the underlying risk, including trends in inflation and losses. It is important to note that each company has its own method to calculate rate changes, which may not be fully comparable, and the overall results will also be a function of differing business mixes.

Litmus Analysis has calculated the aggregate price change as the premium weighted average for the changes reported by each company.)

While January 2024 renewals saw overall improvement in risk-adjusted pricing and premium volume, the performance of the ‘Big Four’ global reinsurers highlights more idiosyncratic risk appetites

Although all the four largest European reinsurance groups achieved risk-adjusted pricing increases at the recent 1 January 2024 treaty renewals, Munich Re saw risk-adjusted pricing almost flat, though the group expects stable or improved terms & conditions to maintain portfolio quality. In aggregate, the combined premium volume grew by 7% (1.1.2023: 2%), ranging from 3% for Munich Re, to growth of 14% for SCOR following a year of deliberate retrenchment.

1 January is an important date in the reinsurance industry’s calendar, as the renewal date for the bulk of European P&C treaties and much other business around the world. All the major reinsurers provide some commentary on their January renewals, but the big four European reinsurers (Hannover Re, Munich Re, SCOR and Swiss Re, together representing c. 40% of global P&C reinsurance premiums) provide more detail than their Bermudian and international peers. In this brief report, we examine the public disclosures from these companies, aggregating the four to present a composite picture.

Europe and Americas dominate

Some two-thirds of the group’s European treaties renew at 1 January, with important contributions from the Americas and Asia Pacific. Together, the January renewals for these regions represent somewhat over half of their aggregate premium volume up for renewal during the year.

1 January 2024

For this group, around half of traditional treaty reinsurance premiums were up for renewal at 1 January 2023. Other important dates are 1 April (when the focus is on Japanese and other Asian business), 1 June (Florida cat) and 1 July (some US, Australasia, and other global programmes). Facultative and Specialty have no common renewal dates and are spread throughout the year.

Figure 1 Rate and premium development at 1 January 2024 renewals

Source: company disclosures, Litmus Analysis

Swiss Re reports in US dollars; for the purpose of this aggregation its figures have been converted into euros using the 1 January 2024 exchange rate of USD 1 = EUR 0.906

We have combined the reported renewal experience of the four European groups, and the overall picture is shown in Figures 2 and 3.

Figure 1 shows the overall rate and premium development at renewal reported by the four companies. Following a substantial contraction in premium volume in its January 2023 renewals, SCOR reported the biggest increase in renewed premium volume, up 13.6%, growing its exposure in lines and geographies where pricing and terms & conditions met strategic risk-return criteria. Meanwhile, Swiss Re achieved the highest overall rate increase (9.0%) prompting further growth across most of its portfolio, with the exception of Casualty where premium volume was flat.

Each of the companies in our study reported an overall increase in risk-adjusted pricing, ranging from c. 0.3% for Munich Re to 9.0% for Swiss Re (compared to the January 2023 range: 2.3% for SCOR to 18.0% for Swiss Re); consistent with recent years, prices increased across almost all lines and territories, especially on loss-affected business, continuing to reflect underlying loss trends and inflation. All companies continued to report targeted reductions in segments with less favourable prospects.

Figure 2 Combined result of 1 January 2024 renewals

Source: company disclosures, Litmus Analysis

The development of the renewal for the combined group is shown in Figure 2 above. EUR 39.3bn of their treaty reinsurance premiums were up for renewal. Of this, 9% was cancelled or replaced (which includes reductions in shares on renewing treaties as well as business declined and not renewed), giving a total of EUR 35.8bn which was renewed. The 7% increase by the cohort at renewal represents both the effect of price changes and increases in shares on treaties. New business contributed an additional 8%, benefiting from growth across most core business lines. The combined portfolios grew 7% to EUR 42.0bn, compared with 2% growth reported at 1 January 2023. In aggregate, the weighted average price increase was 3.5% (1.1.2023: 8.3%).

Figure 3 Estimated aggregate renewed premiums

Source: company disclosures, Litmus Analysis

Figure 3 shows the individual group shares of the combined premium volume written in the 1.1.2024 renewals by each of the four major European reinsurers.

Once again, each of the companies in our study commented that the favourable trends experienced at the January renewals were expected to continue through the later renewals during the year.

Time series

Figure 4 shows the reported growth in renewed premiums of the group over the last five January renewals. While aggregate premium volume grew in each year, the rate of growth slowed substantially in 2023 before picking up again in 2024. The current year also marks the first time in several years that all cohort members grew their January renewal premium volume, following several years of portfolio re-balancing by each of the individual companies.

Figure 4 Premium volume change at 1 January, by company and aggregate

Figure 5 (below) shows the development of the overall premium rate change over the period. Each company has reported positive rating development at each renewal, but that disclosed by Munich Re has been consistently lower than those of its peers. This may reflect differences in methodology and business mix.

Figure 5 Premium rate change at 1 January, by company and aggregate

Source: company disclosures, Litmus Analysis

 

Hannover Re

Hannover Re had EUR 9.6bn of traditional treaty reinsurance premiums up for renewal at 1 January 2024, representing 62% of its total book (excluding structured reinsurance, ILS and facultative business – together close to 35% of the group’s P&C reinsurance premiums). A further EUR 5.8bn of traditional treaty business is due to renew later in the year. 42% of renewing business came from Europe, Middle East and Africa (EMEA), 28% from the Americas, and 11% from the Asia Pacific region, with the remainder comprising global specialty business. Overall, the group reported a more stable pricing environment than in recent years, coupled with an increase in demand for capacity.

Hannover Re reported an overall price increase of 2.3% on an inflation- and risk-adjusted basis across 2024 renewals, off the back of 2023 loss experience coupled with the “continuing high levels of inflation and geopolitical uncertainties”, enabling the group to achieve further necessary rate improvements in many lines and regions, and contributing to an overall increase in treaty premium of 6.9%. Hannover Re continues to emphasise non-proportional reinsurance business and this business grew strongly, with premium volume rising by 10.6% and a rate increase of 4.4% on a risk-adjusted basis. Proportional reinsurance premium volume also increased, by 5.3%, with prices rising by 1.3% on a risk-adjusted basis. The group also capitalised on attractive growth opportunities in structured reinsurance and ILS.

Figure 6 Hannover Re January 2024 treaty renewals

Source: company disclosures, Litmus Analysis

Citing a more stable market environment and increasing demand for reinsurance capacity, Hannover Re claimed to have secured further necessary rate improvements in many lines and regions which, when combined with the sustained improvements achieved in recent years, position the group well to meet future challenges.

Hannover Re reported price rises across all major markets/business lines.

Reporting lines Premium 1.1.2023

EUR m

Premium 1.1.2024

EUR m

Premium changes Price changes
EMEA 4,057 4,319 6.5% 2.4%
Americas 2,658 2,716 2.2% 2.9%
APAC 1,084 1,193 10.1% 0.7%
Credit, Surety and Political risks 764 845 10.7% 0.5%
Aviation and Marine 278 310 11.5% 4.1%
Agricultural Risks 712 829 16.4% 3.1%
Total 1 January renewals 9,552 10,212 6.9% 2.3%

Source: company disclosures

Hannover Re’s regional businesses continued to be impacted by frequent large losses through 2023, leading the group to focus primarily on the risk profile and profitability of business being renewed in the EMEA region.  Achieving both higher rates and improvements in terms & conditions, most particularly in catastrophe-exposed business, the group retained its strong market presence and achieved premium growth of 6.5% and an overall price increase of 2.4% in the EMEA region.

Reported premium growth was somewhat more modest across the Americas region, at 2.2%; however, it should be noted that a substantial proportion of the renewals for this region are not negotiated until the middle of the year. For North American business incepting at 1/1, Hannover Re continued to work towards further improvements in rates and terms in loss-making property business and also saw some rate improvement in liability classes, while scaling back its cyber exposures in the face of an increasingly competitive market.  Improvements in both rates and terms & conditions were also achieved in Latin America, where reinsurance capacity for catastrophe exposures remains tight and the market continues to display attractive opportunities and the potential for further improvement.

Strongest regional growth was achieved in APAC where, against a background of improving terms & conditions following recent catastrophe losses in the region and with pricing considered to be “generally adequate”, Hannover Re was able to grow its premium volume by 10.1% and increase pricing by c. 0.7%. However, accounting for only 11% of renewing premiums APAC represents the group’s smallest region.

Hannover Re also reported robust growth within its Global Markets business, accompanied by improvements in risk-adjusted pricing and terms & conditions within some lines.  Credit, Surety and Political Risk premiums rose by 10.7% in what the group described as an attractive market environment with good underlying profitability and a move away from proportional towards non-proportional programmes.  Aviation & Marine premium volume was up 11.5% year-on-year, while the overall 4.1% improvement in risk-adjusted pricing was underpinned by increases in excess of 10% for non-proportional aviation business, and the group maintained its market position in marine even in the face of rising reinsurance capacity in the sector.  Meanwhile agricultural risks saw further improvements in loss-affected business accompanied by improvements in terms & conditions leading Hannover Re to grow volumes by 16.4% in this segment with an improvement in risk-adjusted pricing of 3.1%.

On its total renewed book, Hannover Re achieved an average price increase of 2.3%, compared with 8.0% at 1 January 2023. 1/1 renewals of Natural Catastrophe-exposed business achieved high single-digit growth, with the group once again achieving significantly higher prices and further improvement in terms & conditions on top of the price increases achieved in 2023, especially across loss-impacted programmes.

Average risk-adjusted pricing on proportional business (69% of renewed premiums) was up 1.3%, while non-proportional pricing rose by 4.4%.

Figure 7 Hannover Re January 2024 treaty renewals by type

Source: company disclosures, Litmus Analysis

Figure 8 Hannover Re January 2024 Proportional treaty renewals by region and class

Source: company disclosures, Litmus Analysis

Figure 9 Hannover Re January 2024 Non-proportional treaty renewals by region and class

Source: company disclosures, Litmus Analysis

The treaty renewals exclude EUR 1.1bn of facultative reinsurance premiums and EUR 7.0bn of structured reinsurance and ILS transactions, all of which renew throughout the year.

Commenting on structured reinsurance, Hannover Re again pointed to prevailing market conditions that continue to allow the group to generate further profitable growth in this portfolio, including a continuing shift towards non-proportional coverage that management expect to lead to further improvement in both prices and conditions. Demand for facultative covers was described as stable and the market attractive with risk-adjusted pricing remaining high.

 

Munich Re

With a focus on Europe and North America (mainly excluding hurricane cover which renews later in the year), 45% of Munich Re’s total P&C reinsurance book was up for renewal at 1 January 2024. North America comprised 25% of the renewing book, Europe 32%, Asia, Pacific and Africa 15%, Latin America 5% and worldwide business 23%. Natural Catastrophe business comprised 14% of the renewing book.

EUR 15.2bn of premium was up for renewal, and the renewed book grew by 3.5%, compared with an increase of c. 1% at the 1 January 2023 renewal, resulting in EUR 15.7bn of premiums. Once again, Munich Re focused on underwriting discipline and selective growth, expanding existing client relationships and building new ones where appropriate while also being prepared to discontinue business that no longer met expectations in terms of pricing or terms & conditions. The group characterised pricing as stable – broadly compensating for higher loss estimates driven by inflation and other factors – and benefited from rising primary pricing on proportional programmes; risk-adjusted pricing was unchanged on a historic basis but improved by 0.3% based on IFRS17 revenues. Management expect the positive underwriting environment to persist throughout the rest of the year.

Figure 10 Munich Re January 2024 treaty renewals

Source: company disclosures, Litmus Analysis

Munich Re reinforced these benefits, positioning itself as a reliable long-term partner for its clients, allowing it to access attractive business opportunities in nearly all regions and classes, whilst also working to maintain underwriting discipline and portfolio quality. The change in volume by major class ranged from a decrease of 0.4% in Specialty to growth of 5.7% in non-proportional Casualty.

Including business mix effects and based on GWP, risk-adjusted pricing across the book at this renewal was flat year-on-year (1.1.2023: 1.3%), with increases of 0.3% and 2.9%, respectively, across Proportional and Non-proportional Property risks, and 1.0% for Non-proportional Casualty while risk-adjusted pricing for Proportional Casualty declined by 0.8%. Risk-adjusted pricing for specialty lines was flat for Credit, while for Aviation it declined by 0.6% and for Marine declined by 3.7%.

Munich Re said margins on Natural Catastrophe remained “very attractive” and that it has capacity within its risk appetite for this business in the current pricing environment. The group achieved overall price improvements in Property XL, especially in loss-affected areas; however, this class remains a relatively small element of Munich Re’s overall risk portfolio. Meanwhile, the group is actively working to reduce exposures in Proportional Property that fail to meet pricing or quality hurdles while growing those with better prospects.

Figure 11 Munich Re January 2024 treaty renewals by type

Source: company disclosures, Litmus Analysis

Munich Re’s aggregate Casualty book shrank slightly (from €8.6bn to €8.5bn) as the group continued to prune the portfolio where rising loss assumptions make the business less attractive and, while higher interest rates may bolster performance, its risk appetite remains conservative in the US, where it is detecting early signs of rate deceleration, with premium volume declining to €2.6bn (vs. €3.1bn in 2023). Even so, it is continuing to increase exposure in areas such as Proportional Motor Casualty where rates continue to improve. Across Global Specialty, Munich Re intends to take advantage of continuing momentum, selectively growing where business remains attractive, while continuing to focus on smaller commercial and personal lines.

Overall, Munich Re is committed to defending achieved improvements in terms & conditions as well as implementing further risk-mitigating measures across the portfolio. Management expects the market environment to remain positive through the rest of the year and to present attractive growth opportunities in the upcoming April (Japan focus) and July renewal rounds (USA, Latin America and Australia), where claims experience in individual market segments would be an important influence on renewal negotiations.

Figure 12 Munich Re January 2024 renewed book EUR 15.7bn, by Class and Region

 

Source: company disclosures, Litmus Analysis

SCOR

In response to continuing growth in demand for reinsurance coverage, SCOR pursued a strategy of controlled growth, focusing on preferred lines while aiming to improve the profitability of its overall book and maintaining disciplined pricing and terms & conditions. With an effective rate increase of 3.1% across the portfolio, and of 6.6% on non-proportional business, management expect this to translate into a modest improvement in underwriting performance and expects further portfolio growth on the back of “risk-adequate” pricing for the rest of the year.

Overall, 62% of SCOR’s treaty reinsurance book was up for renewal, with 86% of the European and Canadian portfolio renewing, 40% of the US book, 31% of Mature Asia-Pacific, 54% of Asia Other (Fast Growing Markets), and 45% of Middle East & Africa, Latin America and Caribbean markets. A total of EUR 2.2bn of P&C Lines premiums, EUR 1.4bn of Global Lines, and EUR 0.2bn of Alternative Solutions business was subject to renewal, giving a total of EUR 3.7bn of renewing premiums. Renewed volume in P&C Lines was EUR 2.2bn, virtually flat, while Global Lines premium volume grew by 9.4% to EUR 1.5bn, and Alternative Solutions increased to EUR 0.6bn. The overall result was a 13.6% increase in renewed premium volume to EUR 4.2bn, compared with a 12% reduction to EUR 3.7bn at the 1 January 2023 renewal.

P&C Lines include: Property, Property Cat, Casualty, Motor and other related lines; Global Lines include: Agriculture, Aviation, Credit & Surety, Inherent Defects Insurance, Engineering, Marine and Offshore, Space, Cyber and Alternative Solutions.

APAC Mature Markets comprise Australia / New Zealand, Japan, and South Korea.

Figure 13 SCOR January 2024 renewals

Source: company disclosures, Litmus Analysis

SCOR plans to grow P&C reinsurance exposure in “preferred lines while building a balanced and resilient portfolio” while favourable market conditions persist, although 1/1 renewal premium growth of 13.6% exceeded plan assumptions. Key themes for the renewal were further portfolio diversification, expansion of Alternative Solutions to capitalise on rising demand for customised cover, satisfaction of rising demand for additional Property Cat. capacity within the context of a prudent approach to climate change-exposed exposures and decreasing US Casualty exposures.

SCOR actively pursued growth in Engineering, Inherent Defects Insurance, Marine, and International Casualty as a key part of its risk diversification strategy, growing premium income across these lines by 13.3% year-on-year, while also increasing Alternative Solutions premiums two-fold, taking advantage of attractive growth opportunities across all geographies.  At the same time, the group held firm on improvements in terms & conditions achieved during 2023, and increased risk-adjusted pricing by an average 3.1% across the book – achieving an increase of 6.6% on non-proportional business, and 1.5% on proportional.

US Casualty exposures continued to decrease reflecting SCOR’s reduced and more selective risk appetite in this market, reflecting the group’s pessimistic view as to the prospects of this market where it expects continued deterioration in profitability due to rising claims inflation and inadequate pricing.

On catastrophe-exposed lines, SCOR increased its global exposure by 3.5% reflecting increased demand from cedants seeking to address their own inflationary pressures, while also achieving a 6.5% improvement in pricing – primarily from European and US regional carriers. At the same time, the group was able to defend previously achieved improvements in terms & conditions as well as introducing stricter wordings in respect of certain areas of concern (e.g., Strike, Riot & Civil Commotion), and adjusting treaty structures, such as Cat. XL retentions, to limit exposure to business considered to be particularly sensitive to climate change.

Figure 14 SCOR January 2024 renewals, Global P&C Treaty price change by major class

Source: company disclosures, Litmus Analysis

Together with changes to enhance the capacity of its retrocession programme, SCOR expects the improvements achieved across its portfolio (excluding Alternative Solutions) in January 2024 renewal to achieve an improvement in its net underwriting ratio of around 1.5 percentage points.

Underwriting Ratio is the sum of the loss ratio and the external expense ratio.

Swiss Re

53% of Swiss Re’s treaty reinsurance business renewed at 1 January 2024, with USD 12.0bn of premiums up for renewal (including business reported on a deposit account basis under IFRS17, together with multi-year deals, but excluding USD 0.7bn of facultative reinsurance business).

The outcome of the January renewals was said to reflect the persisting elevated risk environment and the group’s continuing prudence in respect of inflationary and other impacts on loss assumptions, particularly in Casualty. With a continued focus on portfolio quality and selective underwriting together with further pricing improvements (+9%) and new business of USD 1.5bn, Swiss Re achieved an overall increase in renewed premiums of 9% to USD 13.1bn (cf. the 13% increase to USD 10.2bn, reported at 1 January 2023). Business which was cancelled or replaced included the targeted reduction of low-margin North American Property exposures as well as reductions in US Casualty and Financial lines.

Figure 15 Swiss Re January 2024 renewals

Source: company disclosures, Litmus Analysis

Growth in renewed premiums was once again achieved in all major classes apart from Casualty, where premium volumes were held steady, and across all regions including the Americas. A 12% increase in Natural Catastrophe-related premium volume was driven by both volume and rate improvements, accompanied by a disciplined approach to the setting of attachment points. Growth of 16% in Property was driven mainly from Asia and EMEA, with growth in these regions partially offset by targeted reductions in North America. In Specialty the group achieved an increase of 19% in premium volume, driven by strong growth in Engineering and Credit & Surety, boosted by the contribution of one particularly large transaction. Casualty premium volume, however, was flat year-on-year where reductions in US Liability and Financial Lines was balanced by growth in structured motor business.

Figure 16 Swiss Re January 2024 renewals, premium volume change, by class and region

Source: company disclosures, Litmus Analysis

Swiss Re reported an overall 9% price increase across its renewed book, compared with an average 18% reported at January 2023, with the largest increases reflected in Nat. Cat.-exposed risks. Taken alongside the 11% rise in loss assumptions, reflecting Swiss Re’s more prudent view on inflation and loss model updates, particularly in Casualty, the net 2% price reduction coupled with improved portfolio quality is expected to translate into further improvement in underwriting year combined ratios – consistent with the group’s sub-87% IFRS target for 2024.

 

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