Large losses to come in above budget for Europe’s big four reinsurers in Q1: BofA

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Bank of America (BofA) estimates that European reinsurance results will fail to hugely impress against already-high expectations for the sub-sector, while analysts expect that all four major European reinsurance companies will have exceeded their Q1 large losses budget.

The key factor for these losses according to the bank is natural disasters. Namely, the Türkiye earthquake in early February. Conservative industry estimates sit around $5 billion of insured losses, across residential and commercial losses, which analysts expect will be heavily reinsured. The highest share of losses at Munich Re is assumed to be at 11.9% and Swiss Re at 9.5% given their greatest participation in the Turkish Catastrophe Insurance Pool (TCIP).

The New Zealand floods in late January and Cyclone Gabrielle in early February, are estimated to cost around $1 billion each. Given high insurance penetration and reinsurance protection in New Zealand, the bank estimates a higher market share for each of the four reinsurers, Munich Re (13.0%), Swiss Re (7.5%), Hannover Re (6.2%) and SCOR (2.9%).

Extreme weather in the US has been estimated to have cost the industry around $8-9 billion in Q1. There is less reinsurance coverage for these events given that they are smaller in relative size and higher frequency. The majority of losses will likely be borne by primary insurers, say analysts.

A number of energy market losses, including a refinery fire, gas well blow-out and earthquake damage also occurred in Q1. Individually, these events have cost between $300-500 million, with a reasonably high share taken by the reinsurers. Nonetheless, the bank expects man-made losses to come in below budget, helping to offset higher nat cat losses in the quarter.

“Large losses will have come in above budget again, an unhelpful start to the year for an industry under pressure to address large loss concerns and deliver acceptable returns to shareholders,” says analysts.

German reinsurance giant Munich Re has already announced a property and casualty (P&C) reinsurance combined ratio of roughly 86.5% for the first quarter of 2023, and said that this is despite major losses from natural catastrophe events trending higher than expected.

For large events, the companies are expected to disclose nominal, un-discounted losses to provide some insight into market shares. However, analysts explain that the methodology of how this feeds into combined ratios could be different. For example, SCOR will report un-discounted large losses within its combined ratio, with discounting applied in attritional claims. This compares to Munich Re, which analysts understand will apply to a discount on its large losses and attritional claims.

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