European (re)insurers promise healthy capital returns despite LA wildfire losses

By Aidan Gregory

Feb 28 - (The Insurer) - European reinsurers and insurers answered lingering questions over how much capital they can return to shareholders by announcing dividend increases and buybacks this week, despite facing their share of estimated total insured losses of $30 billion to $40 billion from January's Los Angeles wildfires.

Rather than retaining capital to fund growth in a hardening market, analysts told The Insurer this week that they expect European reinsurers to ramp up capital distributions as the market is expected to soften over the next two years.

“At this phase of the cycle, the underlying margin is very healthy,” said Andreas van Embden, insurance equity analyst at Peel Hunt in London, adding: “Will that healthy margin continue in 2025? The answer is yes, I think it will."

“I do believe that that rate softening is at a level where margins will remain attractive,” he added.

While the LA wildfires represent a large loss early in the year, the outlook for the (re)insurance sector in 2025 and beyond remains positive as long as there are not any further outsized catastrophe losses, with high potential for share buybacks and dividend increases as the market softens.

“The industry is going to be generating quite a lot of cash,” added van Embden. “Returns are going to be this year, in line with the cost of capital. I would expect next year to be in the mid to high teens. And at some point, once the cycle really turns and softens, all these companies will be returning capital to shareholders.”

Germany's Munich Re kicked off a bumper results week by announcing a 2 billion euro share buyback program to be completed by the time of its 2026 annual general meeting and increasing its dividend for its 2024 financial year to 20 euros a share, despite a 1.2 billion euro loss from the California wildfires.

It was followed by Swiss Re, whose performance has lagged German rivals over the past year due to its concerns about U.S. casualty reserving. The reinsurer raised its dividend to $7.35 a share, up 8% from the previous year, but stopped short of a buyback, which some analysts took as a signal it was looking to prioritise growth.

Meanwhile, Hiscox raised its dividend by 9% in 2024 and launched a larger-than-expected buyback, while Axa's board recommended a dividend of 2.15 euros a share, up 9% from the previous year and launched a 1.2 billion euro share buyback, ahead of a planned 3.8 billion euro buyback later in 2025 once it completes the sale of its asset management business.

Germany's Allianz capped the week off on Friday with a dividend increase to 15.40 euros a share and a fresh 2 billion euro share buyback program.

While losses from the wildfires are a “significant event” for the industry, they are not enough to lead to any material deviation from the industry's likely path toward greater capital repatriation in 2025, Moody’s predicted.

“It's in our view not material enough within itself to start leading to some sort of capital management deviation,” said Helena Kingsley-Tomkins, insurance credit analyst at Moody’s in London.

“It's definitely not a great start to the year and the wildfire losses will eat into their annual cat budgets, but it's not hitting their capital,” added Kingsley-Tomkins.

Nevertheless, the outlook for capital management depends on what sort of catastrophes insurers face this year, particularly when it comes to the Atlantic hurricane season, which officially starts on June 1 and runs through the autumn.

Moody’s said it was still “too early to say” whether the reinsurers would be looking to return additional capital to shareholders in 2025 as the market softens.

“We still think the outlook for earnings this year is favourable,” said Kingsley-Tomkins.

“It really is going to depend on the level of cat activity that we see later in this year...If they have another strong earnings year, then you're looking at huge levels of surplus capital, well above the upper end of their target range.”