Record earnings for reinsurers in first half of 2021

Reinsurers are on track for a record year in terms of profitability, DBRS Morningstar saysin a recent report.

However, the active hurricane season is stirring up headwinds for full-year results, the analysts predict. Another threat is the uncertainty posed by the COVID-19 pandemic and possible court cases over companies’ business interruptions claims.

Reinsurers ended the first six months of 2021 with net income of US$8.4 billion, up sharply from US$777 million a year earlier. The 2021 figure is more in line with the 2019 income of US$8.2 billion.

Reinsurers also improved their combined ratio, which fell from 102.8 percent in the first half of 2020 to 94.2 percent for the first half of 2021. It was 92.5 percent for the first six months of 2019.

Reinsurers achieved this performance despite being forced to incur more catastrophe losses in the first six months of 2021 than in 2020. Catastrophe costs were US$42 billion in the first half of 2021, versus US$31 billion in 2020. For the second quarter, reinsurers will rack up US$30 billion in losses due to Hurricane Ida alone, DBRS Morningstar said in its report.

"With average combined ratios in the mid-90s and strong net income numbers as of H1 2021, it is apparent that reinsurance companies have mostly recovered from the effects of the economic disruptions and market volatility that affected global economies in 2020 during the peak of the pandemic,” DBRS Morningstar analysts say.

Upswing in underwriting and investment income 

Reinsurers covered more catastrophes in the first half of 2021 than in the first half of 2020. So how did they improve their profitability? Through improved underwriting income and strong investment portfolio performance, says DBRS Morningstar.

Reinsurers benefited from the favourable pricing environment that continues in P&C insurance, the rating firm's analysts say. This upward trend could continue into 2022, they predict.

Reinsurance companies’ investment portfolios suffered when the pandemic hit in the first half of 2020. Equity markets have since strengthened, fuelling an improvement in reinsurers’ financial results in the first half of 2021, DBRS Morningstar analysts point out.