An examination of the P&C treaty renewals of the big four European reinsurance groups
Lewis Phillips
Consultant Analyst
- The four major European reinsurance groups renewed EUR 12bn of P&C treaty premiums at mid-year 2021
- Growth in renewed premiums at each of the three principal renewal periods in 2021 exceeded that achieved at the equivalent period in 2020
- Renewed premium volume grew 11%, more than double the 5% growth at mid-year 2020
- Aggregate premium rate increases have declined through the year, falling from 4.8% at 1 January to 3.6% at 1 April and 2.1% at mid-year 2021
The big four European reinsurance groups, Hannover Re, Munich Re, SCOR and Swiss Re, all took advantage of firming market conditions to grow their book at the recent mid-year treaty renewals while achieving better terms on renewed business.
Mid-year renewals are dominated by business from North America and Asia Pacific (notably Australia) and Natural Catastrophe is an important feature of this renewal period. Overall, some 80% of treaty renewals have been completed by this time of the year.
The big four European reinsurers have provided commentary on the renewals with their half year results. In this brief report, we examine the public disclosures from these companies, and have aggregated the four to present a composite picture.
Sources: Company disclosures, Litmus Analysis.
Swiss Re reports in US dollars; for the purpose of this aggregation, its figures have been converted into euros using the prevailing exchange rate for the period.
In aggregate, the four companies renewed some EUR 12bn of treaty premiums at mid-year with growth of 11% and an average risk-adjusted price increase of 2.1%. Growth in renewed premiums ranged from SCOR’s 8% to 15% at Hannover Re. Swiss Re saw average rate changes of an estimated 0.7% while SCOR reported an average 7.9% price increase. (Swiss Re’s commentary is provided on a year-to-date basis. Litmus Analysis has calculated the results of the discrete period by interpolation from previously disclosed renewals data at January and April renewals.)
Premium growth at renewal
Compared with 1 April renewals, growth in renewed premium volume slowed at mid-year 2021 for the group as a whole and for all the constituent companies apart from Hannover Re. For each company, growth at this renewal outpaced that at mid-year 2020.
The chart below shows the outcome, in terms of premium growth, for each company and the aggregate at each of the major renewal periods over the last two years. At mid-year 2021, each company reported an increase in renewed premiums, while growth was more muted, and negative for Swiss Re, in the same period for 2020.
Price changes at renewal
For the most part, premium rate increases appear to have slowed at mid-year 2021, compared with those reported at 1 January 2021, the exception being SCOR whose average price increase was bigger than that at 1 January.
Looking again at the individual results over the period, a declining trend over the last three renewals is evident for each company, apart from SCOR. Some caution is necessary in looking at this trend which is influenced both by underling price movements and changes in the business mix at the different periods.
Company commentaries
Hannover Re
- At 15%, Hannover Re reported the strongest premium growth anoung the group at mid-year 2021 renewals
- Risk-adjusted price rise of 3.2% was above the aggregate 2.1% increse
Hannover Re had EUR 2.2bn of traditional treaty reinsurance premiums up for renewal at mid-year 2021, representing approximately 20% of its total P&C book (excluding structured reinsurance, ILS and facultative), with a focus on the Americas, Australia, Asia and Credit & Surety. Renewed premiums grew 15%, with an overall risk-adjusted price increase of 3.2%, and non-proportional pricing up by an average of 6.4%. There was positive momentum in pricing and premium rates in the Americas, in part driven by higher prices on underlying primary insurance business. Hannover Re said its business benefited in Australia, where cedants have been increasing rententions and streamlining their reinsurance purchases. There was growth in Asia, with some hardening of the Property market, while Credit & Surety benefited from new business and some improvement in pricing.
Munich Re
- Munich Re’s mid-year 2021 renewal achieved premium growth of 11% with an average price increase of 2.0%, closely mirroring the aggregate result
- Proportional Property grew 17% with an average price increase of 2.8%
Around EUR 3.5bn of P&C treaty reinsuance premium was up for renewal at 1 July 2021, representing around 21% of the total book, with a focus on North America (26%), Asia/Pacific/Africa (32%, notably Australia) and Worldwide (26%). Natural catastrophe business comprised 21% of the renewing premiums, compared with 32% at the Japan-dominated April renewal and 15% overall. Renewed premium volume was up 11% with an average price increase of 2.0%. Two thirds of the renewed premiums were Property lines and one third Casualty.
Property proportional business grew by approximately 17% with an average price increase of 2.8%; Property non-proportional grew 10% with an average 2.3% price increase; Casualty proportional volume increased 9% and prices were 1.6% higher; Casualty non-proportional grew 7% with a 1.8% price increase. Strong rate increases were achieved in North America across all lines as social inflation affected Casualty classes and Property was impacted by catastrophe losses. Rates hardened in loss-affected regions such as Australia and South Africa. Rate increases were less marked in Europe but low interest rates, general market sentiment and uncertainty around COVID-19 were said to be contributory factors.
Munich Re also pointed to the rising price of underlying primary insurance which benefits quota share reinsurance. The company also noted a preference among cedants for highly rated “financially solid” reinsurers who are able to position themselves as long term partners.
SCOR
- SCOR bucked the trend for slowing premium rate increases as its average prices rose to 7.9% at mid-year 2021 from 4.0% reported at 1 April
- SCOR’s average price increase was the largest amoung the group at this renewal
SCOR Global P&C had EUR 735mn of treaty reinsurance premiums up for renewal at mid-year 2021, representing some 15% of its total book, and took advantage of favourable conditions to grow its book by 8% to EUR 792mn, with a 7.9% average price increase. The year-to-date price increase was 8.0%. North America dominated with 57% of renewing business at mid-year, and premium volume in this segment increased by 6% as the company selectively took advantage of significant price hardening. In the Fast Growth Markets segments, EUR 157mn of premiums (21% of the total) were up for renewal, primarily from Latin America and Middle East & Africa, where the renewed premium volume grew by 9%. Most European business renews at 1 January, so Europe was the smallest contributor at mid-year 2021, with EUR 82mn (11%) of premiums up for renewal. Nevertheless, this segment recorded the strongest growth at 15%, driven by key client relationships and new business gains. In Australia, SCOR was able to secure better terms on Cat treaties while further diversifying its portfolio.
SCOR echoed Munich Re in noting the ability of highly rated reinsurers to leverage their position to achieve growth at improved terms.
Swiss Re
- Growth at more recent renewals during 2021 has offset an 11% fall in renewed premiums at 1 January, with USD 16.1bn of P&C treaty reinsurance premiums renewed year-to-date
- Year-to-date prices rose 4%, with an implied 1% increase at mid-year 2021
On a year-to-date basis, Swiss Re had renewed USD 16.1bn of premiums by mid-year 2021, with renewed volume flat. This represents some 85% of the company’s treaty reinsurance business. Year-to-date, the average price increase was 4%. Swiss Re commented that the price improvement more than compensated for the adverse impact of higher loss assumptions and lower interest rates.
The Americas contributed 42% of renewing premiums, with renewed volume up 8%; EMEA was 38% of renewing premiums, with renewed volume down 5%; Asia 20% of renewing premiums, down 8% as renewed. The 1 January saw volume down 11% as portfolio remediation was undertaken on some large casualty shares and reductions in certain property aggregate exposures, so the later renewals represent an element of catch-up. Nat Cat business (19% of renewing premiums) grew by 8%; Property (25%) contracted by 6%; Specialty (13%) up 7%; and Casualty (43%) was down 3%.
Backing out the separately disclosed results of 1 January and 1 April renewals, Litmus Analysis calculates that Swiss Re had some USD 5.1bn of premiums up for renewal at mid-year 2021 which grew by approximately 10% with an average price increase of 0.7%.
For any further information please contact John Walsh
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