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KBW's Satkauskas: European reinsurers well positioned to absorb US casualty deterioration

ReutersFeb 12, 2025 3:00 PM

By George Abbott

- (The Insurer) - Europe's reinsurers are well positioned to withstand any further deterioration in US casualty lines, according to KBW analyst Darius Satkauskas.

In an interview with The Insurer TV, Satkauskas highlighted how prudent reserving practices provide a cushion for Europe's reinsurer's to absorb any further losses.

“If we look at the back books, European reinsurers' reserve positions are strong and should absorb US casualty loss cost trends driven by social inflation," he said.

“The Germans, on top of historically conservative underwriting and reserving practices, generally carry material bulk IBNR, so we don’t see the risks to their balance sheets in the medium term.”

Bulk IBNR refers to development on liability for claims incurred but not reported.

“Scor has been underweight in US casualty, and it’s been building bulk IBNR to reduce its earnings volatility.”

“Swiss Re – following material reserve additions in the past few years and recently adding $2.4bn to the US liability reserves, and moving its overall P&C reserves to the 90th percentile of the best estimate range – also feels like a safe balance sheet,” said Satkauskas.

While European reinsurers are well prepared for existing exposure, Satkauskas noted that they would remain reluctant to write any new US casualty business, continuing the trend of reinsurers pulling back from the space.

This disciplined approach means Satkauskas does not expect further reserve charges from European reinsurers in the "medium term".

“I think the reserve cushions are large and the balance sheets are strong. The companies with overweight exposures and limited freedoms in US liability books, such as Swiss Re, already took the necessary charge,” said Satkauskas.

Scor well positioned for 2025

Among European reinsurers, Satkauskas sees Scor as the most attractive stock for investors in 2025, given its modest expectations and improving financial position.

“We are cautious about paying a high or full earnings multiple for a reinsurer at this point in the cycle, as investors could soon begin to worry about the peaking margins, even if earnings can be shielded by strong balance sheets.”

“So, we think Scor seems well positioned to do well. We’re not paying for excellence here. The group simply needs to deliver on the modest earnings expectations,” said Satkauskas.

He pointed to Scor’s recent reserve additions in both P&C and life and health, as well as management’s focus on reducing earnings volatility, as key factors supporting its investment case.

“And I think recent reserve additions in both P&C and life and health, and management's focus on the earnings volatility reduction suggest that risk-reward is good. If we are right, and the Solvency II ratio has recovered towards the higher end of the 185% to 220% target range at the end of December 2024, the full-year results could be the catalyst for re-rating,” explained Satkauskas.

Watch the full interview to hear more about how Satkauskas expects European reinsurance stocks to perform in 2025.

Disclaimer: The information provided on this website is for educational and informational purposes only and should not be considered financial or investment advice.

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