Positively, COVID-19 related life reinsurance claims are diminishing, and rising interest rates will support investment returns over time. While falling bond and equity prices resulted in a significant decline in reported shareholders' equity, capital adequacy remains very strong, confirming the cohort's capacity to absorbing future shocks.
Cat losses and weak investment returns almost halve H1 profit. The four reinsurers reported combined net profits of EUR 1.9 billion in the first six months of 2022, down from EUR 3.6 billion a year earlier. While profit drivers varied by company, two key trends were weaker property and casualty (P&C) reinsurance results because of above-average catastrophe claims, and lower investment results as a result of volatile financial markets. Life reinsurance results benefited from a decline in COVID-19 claims in the second quarter, in line with expectations. Estimated claims related to the Russia/ Ukraine conflict are moderate, but are still subject to uncertainty.
Pricing gains support premium growth. Growth in the peer group's P&C reinsurance premiums is accelerating, reflecting both exposure growth and price increases at recent policy renewals. Pricing momentum remains positive, but we notice varying approaches to managing growth in property catastrophe insurance, with some remaining bullish but others pulling capacity. Life reinsurance premiums are also expanding, but at a more moderate pace.
Claims inflation and nat cats are key considerations for H2. The peer group appears confident that price increases will be sufficient to offset rising claims costs. However, we believe upcoming reserve reviews could raise questions about whether reserving levels are sufficient to mitigate broad-based claims inflation, both in short-tail and long-tail lines. Most companies' catastrophe loss budgets for the rest of the year are also under strain following above average claims in the first half.
Asset values fall, but capital remains a key strength. Falling bond prices as a result of higher interest rates, and to a lesser extent weaker equity markets, have reduced reported shareholders' equity by a quarter on average since year-end 2021. However, rising rates were positive for the sector's regulatory Solvency II and Swiss Solvency Test regulatory capital ratios, offsetting a likely increase in capital requirements due to business growth and capital market volatility.
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