January renewals seen sufficient to secure reinsurers margin expansion in low single-digits

Reinsurers likely managed aggregate rate increases in the January renewals sufficient to secure themselves low single digit margin expansion, analysts at the Berenberg investment bank told institutional clients in a recent note.

"There is optimism that not only have rates increased, but that there has also been further margin expansion once one allows for claims inflation, changes in risk perception and interest rates," analyst Kathryn Fear (pictured) wrote of her 2022 conversations to date with management in the reinsurance industry.

Climate risk may be the greatest unknown, hence the hottest topic, but markets and management may be reading opposite sides of the climate coin, Fear wrote of what she believes could spell investment opportunity.

"We believe that investors are far more bearish on this line of business than the reinsurers are themselves," Fear wrote.  She contrasts investor fear of the nat cat impact on the P&C business with recent guidance from Munich Re and Swiss Re that they are perfectly happy with their combined ratio on the lines of what remains "a core part of the business plan."

"While it will continue to be a source of volatility for the subsector, it is also an opportunity."  Berenberg retains its "Buy" recommendations on Munich Re, Swiss Re and SCOR.

Berenberg cites growth in Munich Re’s underlying earnings power (on a normalised basis) by the highest CAGR, at 9.1%, followed closely by SCOR (9%) and Hannover Re (8.7%.). Swiss Re brought up the rear at a normalised CAGR of 5.5%.

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