Europe's reinsurers stay positive on summer renewals and earnings outlook

By Scott Vincent

May 19 - (The Insurer) - Europe's reinsurers have emerged from the first-quarter earnings season with a confident outlook for upcoming renewals and 2025 financial targets despite collectively booking 2.4 billion euros ($2.7 billion) of Los Angeles wildfire losses during the period.

Although all four of Europe's major global reinsurers exceeded their major loss budgets for the quarter, each voiced confidence that there remained sufficient scope within their respective catastrophe allowances for full-year earnings targets to be maintained.

And while rates softened modestly during the two major renewal rounds so far this year, earnings commentary pointed towards optimism that the impact of January's LA wildfires will be more pronounced in stemming downward pressure at the upcoming June 1 renewals.

Both Munich Re and Hannover Re reported that risk-adjusted rates are only down by around 1% for the year to date, with sentiment at April 1 similar to that in January.

"We have not observed any meaningful inflow of new capital, but reinsurance capacity was generally available," Hannover Re CEO Clemens Jungsthöfel said during the group's first-quarter earnings call.

Swiss Re reported a headline price increase of around 1.5% at April 1. But with loss cost assumptions rising by 3.7%, this implies a negative net price change of 2.3%.

However, Swiss Re's recently installed CFO Anders Malmström said the reinsurer had been able to broadly defend margins at April 1. "What was equally important, which you don't see in the numbers, is that we were also able to maintain the structures and the terms and conditions. They basically stayed largely unchanged, which I think is a very good outcome," he said.

And the reinsurer said the LA wildfires were the critical factor in driving expectations for a positive outcome at the upcoming summer renewals.

"Large parts of loss budgets are already consumed, which will definitely have an impact on the next renewals upcoming on June 1 and July 1. And these in themselves make up 20% of the renewal business for our book."

LA WILDFIRE DISCLOSURES

There were limited changes to previously disclosed wildfire estimates during Q1 announcements, although both Munich Re and Swiss Re booked losses slightly below previous guidance.

Munich Re reported 1.1 billion euros of LA wildfire losses in the quarter, below its preliminary estimate of 1.2 billion euros, which the reinsurer said was due to the positive effects of a weaker U.S. dollar and retrocession. Approximately 800 million euros of the total came through the group's P&C reinsurance segment.

Hannover Re reported 631 million euros of net wildfire losses, within its previous guidance of 500 million euros to 700 million euros.

During its quarterly earnings call, the reinsurer said its gross losses from the event had totalled 1.3 billion euros, of which 438 million euros had come through its ILS fronting activities. Of the 868 million euros of losses written through its own account, Hannover Re said it expects to recover 230 million euros through its retro program, most of which will be covered through its K-cession sidecar facility.

Swiss Re reported $537 million of wildfire losses in its P&C reinsurance division with an additional $50 million in its Corporate Solutions business, having previously guided that its group exposure would be below $700 million.

And Scor, which has reduced its natural catastrophe exposures in recent years, said its wildfire losses were in line with its previous guidance of 140 million euros. Collectively, net losses disclosed by the four reinsurers total around 2.4 billion euros, which equates to 6.75% of a $40 billion industry loss.

EARNINGS OUTLOOK

For all four companies, losses from the LA wildfires meant first-quarter cat budgets were exceeded.

Major losses in Munich Re's P&C reinsurance division represented 21.3% of net insurance revenue, compared with a budget of 17%.

Hannover Re said its large loss budget was exceeded by 330 million euros during the quarter, while Swiss Re's catastrophe bill of $570 million was significantly above its $363 million budget. Scor's natural catastrophe claims ratio of 12.5% for the quarter was also above its budgeted 10%.

Despite this, all four companies have maintained their previously disclosed full-year earnings outlooks, in part due to the relatively confident outlook for upcoming renewals detailed above.

Munich Re's 1.1 billion euro net profit for the first quarter was below the 1.5 billion euro run-rate needed for it to achieve its 6.0 billion euro full-year target, with currency and investment headwinds also affecting its quarterly result.

But a normalisation of these trends over the remaining nine months could see full-year net profit reach as high as 6.8 billion euros, Berenberg analyst Michael Huttner said.

Hannover Re's Jungsthöfel said the group was maintaining its full-year combined ratio target of 88% or lower, telling analysts during last Tuesday's earnings call that its "remaining large loss budget provides significant room to absorb losses" during the rest of 2025.

Scor is already ahead of its full-year target combined ratio of below 87%, having delivered an 85% combined ratio during the first quarter despite the wildfires.

And Swiss Re's P&C reinsurance division was only 1.0 percentage point off its 85% full-year combined ratio target during the first quarter, despite the division's $537 million wildfire loss bill.