Big four European reinsurers “continue to be well capitalized,” A.M. Best reports

Europe’s four largest reinsurers, as well as the Lloyd’s market, posted “very strong underwriting results” in 2014, but they continue to face pressure from alternative sources of capital, A.M. Best Company Inc. suggested a report released Wednesday.

“The major European reinsurers have posted very strong full-year results for 2014 and continue to be well capitalized,” noted A.M. Best in a special report on European reinsurers.

The Oldwick, N.J.-based ratings firm noted that Hannover Re Se, Munich Re, Swiss Re Ltd. and SCOR SE had combined ratios, in 2014, of 95%, 96.7%, 91.7% and 84% respectively. Meanwhile, A.M. Best noted, the Lloyd’s market had a combined ratio of 87.3%.

Hannover Re Se, Munich Re, Swiss Re Ltd. and SCOR SE had combined ratios, in 2014, of 95%, 96.7%, 91.7% and 84% respectively. The Lloyd’s market had a combined ratio of 87.3%.

Its analysis of the full-year financials for the big four reinsurers, plus the Lloyd’s market, “demonstrates underwriting results have been profitable owing to the absence of sizeable natural catastrophes and ongoing reserve releases,” A.M. Best noted. [click image below to enlarge]

The underwriting results were “very strong,” despite some weather related events, including wind and hail storm Ela, snow storms in Japan last year and Hurricane Odile.

“Man-made losses included an explosion at a Russian refinery and marine losses from the Normand Atlantic ferry,” A.M. Best noted. “Additionally, there was an unusually high incidence of aviation losses, notably the disappearance of Malaysia Airlines Flight MH-370, hull claims due to fighting at Tripoli airport, the downing of Malaysia Airlines Flight MH-17, the crash of the Virgin Galactic SpaceShipTwo and the Orbital Sciences Antares rocket explosion.”

But A.M. Best added that “an absence of major natural catastrophes, particularly U.S. windstorms, has resulted in profitable underwriting in 2014.”

Related: Insured losses from disasters below average in 2014 despite record number of natural catastrophe events: Swiss Re sigma study

However, reinsurance firms “face challenges as soft market conditions persist and concerns mount regarding the sustainability of reserve releases,” A.M. Best warned. “Organic growth is limited, with rates remaining under pressure and certain lines of business underperforming, leading to a need to underwrite risks more selectively. Reinsurers are seeking opportunities for expansion into emerging markets and new lines of business.”

The attractiveness of reinsurance to alternative sources of capital could be reduced if there are major losses or a “sustained recovery of interest rates,” A.M. Best added.

“However, the exceptionally low yield environment is expected to continue with any increases in interest rates likely to be gradual. Furthermore, alternative capital is increasingly provided by pension funds rather than opportunistic investors, which may be less likely to reallocate their investments given that insurance-linked securities represent only a relatively small proportion of their substantial asset portfolios.”