As the Rendez-Vous kicks off the official renewal season, all eyes turn to the industry’s four largest carriers, whose behaviour over the quarter will have a meaningful impact on the 1 January outcome.
Swiss Re, Munich Re, Hannover Re and Scor are heading into the autumn with a stellar 2023 record under their belts and a profitable 2024 highly likely, hurricane season willing.
Pricing overall has continued to increase in every major renewal so far in 2024, and there is no expectation of a sudden reversal.
The continued rise in demand for coverage, coupled with the lack of new capacity entering the sector, also stands in the quartet’s favour – although a second year of stand-out returns may attract more capacity in 2025.
However, there are elements that may temper the Big Four’s enthusiasm as they head for the Côte D’Azur.
While rates have continued to rise, half-year data from each of them pointed firmly to a deceleration of pricing.
Each of the quartet took varying levels of action on reserving during 2023-24 designed to improve resilience for 2025.
Scor has pledged to build a EUR300mn ($332mn) reserve buffer by 2025 and is working towards this each quarter, while Hannover Re last year banked EUR500mn in “opportunistic” reserves designed to smooth results.
But not all the reserving was motivated by the same factors, with Swiss Re continuing to add to its casualty reserves as it plays catch-up on the impact of social inflation. This raises the question as to whether it – and reinsurers more generally – are truly on top of their casualty loss deterioration.
Indeed, Munich Re and Scor have both now expressed notes of caution on casualty. Munich Re cut proportional casualty premium by a significant amount at the mid-year renewals, and Scor continued to rebalance its portfolio away from casualty in July. This raises the prospect of an improving casualty treaty market in which three of the four largest reinsurers are hesitant to grow.
Swiss Re: Casualty headache among various challenges
Swiss Re has suffered prolonged issues with its US casualty reinsurance back-book, having added more than $2bn to its casualty reserves in 2023 and $650mn more by July this year.
The question of whether Swiss Re is now confident it is fully abreast of its casualty deterioration, and has sufficient reserves, still looms large – and its casualty losses over the past few years will dictate its attitude to the class in forthcoming renewals.
The carrier is also in the midst of a major leadership change, with new CEO Andreas Berger replacing Christian Mumenthaler on 1 July and its CFO John Dacey to retire in March 2025.
While the company has offered assurances that the leadership transition will be smooth, changes at the top of companies can always lead to strategic shifts.
As the new group CEO, Berger faces a variety of challenges, not least Swiss Re’s weakened competitive position in relation to its peers.
This is born out in its combined ratio, which was less frequently below 100% than that of its peers during 2017-2022, as well as its reduced shareholders’ equity position and its lagging total shareholder return relative to peers, only trailed by Scor.
All these elements emphasise a need for further discipline and profitable growth for the world’s largest reinsurer, with 1 January the first major test of the new CEO.
Scor: Léger makes two steps forward, one step back
Scor has been beset by challenges over the past few years, which resulted in the launch of a major remedial programme in 2022 by then-CEO Laurent Rousseau and continued by today’s chief, Thierry Léger.
But while the remedial programme was beginning to bear fruit, notably in the P&C CoRs and insurance service results of recent quarters, Scor was then hit by a major life and health (L&H) charge.
This led to a group operating loss of EUR227mn at the mid-year point, the exit of its L&H chief and a pledge from Léger to turn around the life unit.
It is not yet clear how much of a drag the L&H loss will be to the group’s overall performance, with a further update expected in the autumn. The development, however, will mean Scor must continue to focus on P&C underwriting discipline if it is to achieve its group restoration.
Munich Re: Steady progress
Munich Re has maintained a sub-80% CoR for its P&C unit for H1, continuing its success over 2023.
Last year’s result came despite an additional EUR900mn in “prudency reserves” that the carrier put away to protect against US casualty deterioration, economic inflation and the potential for major latent losses.
At mid-year 2024, Munich Re disclosed a “significant premium reduction” in some parts of proportional casualty treaty, namely D&O, general liability and cyber as it looked to avoid business on which cedants would not meet its terms.
This – along with its leadership on the inclusion of cyber war exclusions at the last January renewal – suggests Munich Re is headed into this renewal round with a willingness to walk away from business that does not fit certain parameters.
Hannover Re: Magic formula still in play
As this publication has explored, Hannover Re seems to have developed the ‘magic formula’ needed to return consistent profits in P&C.
This is borne out in its performance over 2023. Like its peers, Hannover reported a profitable year, and like its peers it took some reserving actions in early 2024 with a EUR500mn charge.
The investment community was more forgiving of Hannover for its additional reserving than of others, however, in that the charge was described as an opportunistic move paid for with a tax windfall through which it aims to smooth future results.
However, as this publication has reported, Hannover’s magic formula – a combination of nimbleness, low expenses and a sound reinsurance niche – is under threat from its continued expansion.
As Hannover Re continues to build scale, there are fears that its hitherto consistent outperformance could be marred by the increased expenditure and slower decision-making that size brings.
The way in which it chooses to grow will be key to maintaining its competitive edge.