RenRe, Validus record worst combined ratios after hurricanes: Fitch

RenaissanceRe Holdings and Validus Holdings registered the highest combined ratios in the first nine months of 2017, according to Fitch Ratings.

RenaissanceRe’s combined ratio was 156 percent between January and September 2017 while Validus Holdings’ was 141 percent as the companies hold the greatest proportion of property catastrophe business of global reinsurers.

Overall, non-life reinsurers’ underwriting results weakened significantly in the first nine months of 2017 to a 116 percent reinsurance combined ratio from 91 percent in the same period of 2016.

The deterioration in the combined ratio was driven by 28 points of near record catastrophe losses, primarily from hurricanes Harvey, Irma and Maria.

Each global reinsurer that Fitch tracks reported a nine month 2017 reinsurance combined ratio over 100 percent with the exception of PartnerRe with 99 percent.

The catastrophes dented the capitalization of some reinsurers. Double-digit shareholders’ equity declines led to negative rating outlooks at AXIS Capital Holdings (13 percent) and XL Group (11 percent). Sirius International Insurance Group had the largest decline at 15 percent, driven by a change in capital structure and catastrophe losses. It should be noted, however, that Sirius says its common shareholder’s equity only dropped 5 percent as a result of the third quarter 2017 cat activity compared to 2016 with the remainder of the change related to Fitch’s treatment of recently issued subordinated Tier 2 debt.

Overall, shareholders’ equity declined by only 1 percent for Fitch’s group of reinsurers in the first nine months of 2017 (excluding Berkshire Hathaway). FairfaxFinancial Holdings had the highest growth at 47 percent, due to its acquisition of Allied World Assurance Holdings.

The nat cat events of the third quarter of 2017 will drive the industry into an underwriting loss in the full year. Fitch forecasts a 110 percent reinsurance combined ratio, the worst underwriting result since 113 percent registered in 2011.

But following the losses, market conditions in reinsurance are poised to improve. Fitch forecasts a 2018 reinsurance combined ratio of 96 percent, reflecting an average level of market catastrophe losses of eight points, down from 22 points in 2017. The underlying combined ratio should improve slightly in 2018 as reinsurance market pricing appears to have reached a bottom in 2017 and is expected to turn positive in 2018.

Nevertheless, earnings are expected to barely cover the cost of capital in 2018. Fitch forecasts a 7.1 percent return on equity (ROE) in 2018 for global reinsurers, just above the estimated 6–7 percent cost of capital, as both underwriting and investment results remain stressed.

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