Europe's big four reinsurers reaffirm FY profitability targets but revenue growth wanes

By Carlos Pallordet

Aug 18 - (The Insurer) - Europe’s four leading reinsurers reported improved P&C reinsurance combined ratios during the second quarter but investors remained cautious as revenue growth cooled.

Munich Re was the strongest performer among the quartet, delivering a P&C reinsurance combined ratio of 61.0%, driven by "very low" major loss expenditure during the quarter.

The result was well ahead of consensus of 72.5% and represented an improvement of 12.7 percentage points year on year.

The strong second-quarter result helped offset the wildfire-inflated 83.9% combined ratio reported in Q1, bringing the first-half average to 72.9% (or 79.2% on a normalised basis) and keeping the company on track for its circa 79% full‑year target.

Munich Re’s peers also benefited from a very light quarter for natural catastrophe claims, with combined ratios improving significantly compared to the same period last year.

Hannover Re posted a P&C combined ratio of 82.1% for the second quarter, down from 87.6% a year ago.

The combined ratio for the first six months of the year deteriorated to 88.4% from 87.8%, but the reinsurer attributed this to a strengthening of the “resilience” of its loss reserves.

Large net individual losses in the first half included a 615.1 million euro ($720.0 million) hit from the California wildfires in January, 76.0 million euros from the Texas oil refinery fire, 59.0 million euros from the Myanmar quake and 50.0 million euros from a series of U.S. Midwest tornadoes.

Hannover Re CEO Clemens Jungsthöfel said: “After the considerable expenditures for losses in the first quarter, large losses were far more moderate in the second quarter. Overall, we can look back on a good business performance in the first half-year.”

According to guidance issued by Hannover Re in February, the company expects a sub-88% P&C reinsurance combined ratio for 2025.

Swiss Re reported a P&C reinsurance combined ratio of 76.3% percent for the second quarter, down from 84.4% in the same period last year.

For the half year, the combined ratio in the division improved to 81.1% from 84.3%, comfortably within the sub-85% target for the full year.

Large natural catastrophe claims amounted to $556 million in the first half, largely from the LA wildfires, while large man-made losses totalled $213 million.

Scor, which was the first reporter in the cohort of European reinsurers, posted a second-quarter combined ratio of 82.5%, down from 86.9% in the prior-year period and ahead of the analysts’ consensus of 83.1%.

The company reported a natural catastrophe ratio of 3.8%, reflecting a benign quarter for the reinsurer. Meanwhile, Scor’s natural catastrophe ratio of 8.2% for the first half of the year remained within budget, despite the impact of the LA wildfires in the first quarter.

GROWTH COOLS

Although each of the four leading reinsurers beat analysts' consensus on net income, the dominant theme of the quarter was sluggish revenue growth – a factor that weighed on their share prices.

Munich Re was the most affected, with its shares falling 7.2% on the day of its earnings release, following a 5% trim in full-year revenue guidance for its reinsurance business – which houses its P&C, life and health and global specialty insurance operations – to 40 billion euros from 42 billion euros.

The company, which had delivered a pre-announced quarterly net profit beat of 30% and confirmed its 6.0 billion euro net earnings target for 2025, said the cut in revenue guidance was driven by currency movements and active cycle management.

Meanwhile, Hannover Re’s P&C reinsurance revenue was 3% below consensus for the quarter, although it reconfirmed its guidance of P&C reinsurance growth above 7% for 2025.

For Swiss Re, P&C reinsurance revenue fell 7.7% year on year, coming in 5.7% below consensus. Group insurance revenue missed consensus by 1.2%.

For the half-year, group insurance revenue was down 5.7%, which the reinsurer attributed to “pruning actions” taken in casualty and “increased revenue seasonality” between the first and second half of the year.

Swiss Re's premium volume at the mid-year renewals decreased by 5.9%, consisting of a 5% increase in property and specialty and a 26.6% decrease in casualty.

However, the company confirmed it did not expect to take further "pruning" actions on its casualty reinsurance book.

Meanwhile, Scor’s P&C gross insurance revenue fell by 9.7% in the quarter (or 6.6% on a constant currency basis) driven by a large commutation impact.

Despite a 42% beat on group net income, Scor's shares fell by as much as 7% on July 31 after it disclosed that Covéa had filed a request for arbitration to contest the validity of a settlement agreed between the two parties in 2021.

As of market close on August 15, Munich Re was trading down 8.4% since its August 8 results announcement. Hannover Re and Swiss Re, which reported on and August 12 and 14, have lost 3.6% and 3.0%, respectively. Shares in Scor have fallen 3.1% since its July 31 release.