Euro reinsurers can expand margin in ’24 on rate gain, inflation turn
European reinsurers should manage another year of margin expansion in 2024, albeit not at the pace taken from the 2023 market reset, as newly tightened terms and conditions continue to protect against rampant losses, but risk-adjusted rate growth slows to a low single digit pace, analysts at Morgan Stanley are telling investor clients.
“We expect 2024 price increases to be positive, but lower than in 2023,” analysts told investors. “We expect overall risk-adjusted price increases of low-mid single digits, with continued discipline on T&Cs, which should drive some margin expansion, albeit less than in 2023.”
That would be a rough and ready match to the early story emerging from the January 1, 2024 treaty renewals, Morgan Stanley analysts suggest. The newly established structures and terms that protected reinsurers from the high-frequency/low severity of 2023 are fully in place for the 2024 treaties as well. Rate growth slowed, including to the single digit pace for the much watched property catastrophe segment.
The trend on rate would also be a comfortable fit against the reversal in inflation after a period in which rates had dangerously trailed the impact of inflation on claims.
“As headline economic inflation appears to have peaked and is projected by our economists to continue falling, we generally expect more stable to improving margins from here,” Morgan Stanley analysts wrote.
For a world so shaped in 2024, Morgan Stanley likes Munich Re best for proven strength and growth plus SCOR for its underappreciated underdog status following prior difficulties. Swiss Re may not have the momentum vis-à-vis market expectations and Hannover Re might not be positioned to best benefit from the shape of the market’s gains, analysts say.
Munich Re “offers a healthy combination of margin improvement and top-line growth” all on a strong balance sheet, analysts say.
SCOR can surprise to the upside “as we believe that the new management is well positioned to make structural changes” including portfolio diversification and reserve improvements all while maintaining growth. SCOR, coming off of several years of remediation even before new management stepped in, “remains the cheapest reinsurer within Europe, in our view.”
Swiss Re has the portfolio that should soar on property cat rate momentum, but won’t likely trigger any earnings forecast upgrades from analysts that might drive the stock, Morgan Stanley warns. A recent investor day gathering offered net profit guidance to match the market consensus, leaving the foreseeable future devoid of new thrills.
Hannover Re would or should have all the ingredients in place for a strong year, but might not have the positioning for this particular market moment, Morgan Stanley suggests. Analysts praise Hannover Re for a strong balance sheet, conservative management, and a history of stronger growth than its competitors, but note that the group’s underweight in property cat is a poor fit to the market’s latest hot spot.
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