Europe’s four largest reinsurers—Munich Re, Hannover Re, SCOR, and Swiss Re—have delivered robust financial results for 2023 and the first half of 2024, particularly within their non-life reinsurance segments. According to a recent report by AM Best, these results reflect the firms’ ability to capitalise on continued strong pricing and favourable terms in the global reinsurance market.
The report, titled “Global Reinsurance – The European Big Four,” forms part of AM Best’s comprehensive analysis of the global reinsurance industry, released ahead of the prestigious Rendez-Vous de Septembre in Monte Carlo. This annual gathering is a key event for the global reinsurance industry, where market trends and future strategies are discussed.
AM Best’s report highlights the impact of recent changes in financial reporting standards on the comparability of earnings among these industry giants. Three of the Big Four reinsurers—Munich Re, Hannover Re, and SCOR—have adopted the International Financial Reporting Standard (IFRS) 17 for their 2023 accounts, while Swiss Re continues to report under U.S. Generally Accepted Accounting Principles (GAAP). This divergence in accounting standards presents challenges in directly comparing the financial metrics of these companies, particularly when looking at combined ratios—a key measure of profitability in the reinsurance sector.
Under IFRS 17, combined ratios are discounted, reflecting the time value of money, whereas under U.S. GAAP or the older IFRS 4 standard, combined ratios are undiscounted. This fundamental difference means that while the reported figures under each standard may look similar, they are not directly comparable. Additionally, even among those using IFRS 17, variations in disclosures, measurement models, and other factors permitted by the standard further complicate comparisons.
Despite these complexities, AM Best notes some general trends. The European reinsurers have shown a tendency towards stable return on equity (ROE) over time, reflecting their resilience in a challenging market environment. This stability is further bolstered by the diversified nature of these firms, which allows them to weather fluctuations in specific segments of the market.
The report also points out the stabilising effect of the life insurance books held by these reinsurers, despite recent challenges. SCOR, for instance, recently announced a review of reserves within its life business, a move that underscores the ongoing pressures within this sector. However, life insurance operations across the European Big Four have generally contributed to their overall financial stability, offsetting some of the volatility seen in non-life segments.
The findings of AM Best’s report come at a critical time for the global reinsurance industry. The sector has faced significant challenges in recent years, including increased natural catastrophe losses, evolving regulatory landscapes, and the ongoing impact of climate change. Yet, the strong results reported by Europe’s largest reinsurers suggest that they are well-positioned to navigate these difficulties, supported by robust pricing strategies and prudent risk management practices.
Moreover, the report indicates that the European reinsurers are likely to continue benefiting from their diversified portfolios, which include significant life and health insurance operations alongside their non-life reinsurance businesses. This diversification is seen as a key factor in their ability to maintain stable returns and withstand market pressures.
As the industry prepares for the upcoming Rendez-Vous de Septembre, the insights provided by AM Best will be closely scrutinised by market participants. The report not only offers a snapshot of the current financial health of the European Big Four but also raises important questions about the future direction of the industry, particularly in light of the challenges posed by differing accounting standards.
In conclusion, while the changing landscape of financial reporting adds a layer of complexity to the analysis, the overall message from AM Best’s report is clear: Europe’s leading reinsurers are performing well, supported by strong market conditions and effective diversification strategies. As they continue to adapt to the evolving global environment, these firms are likely to remain key players in the reinsurance sector, setting the pace for the industry as a whole.