S&P Global Ratings affirmed the ratings of the two biggest global reinsurers this week, Munich Re and Swiss Re, also revising the outlooks for both of them.

For Munich Re, S&P affirmed its ‘AA-‘ issuer credit and insurer financial strength ratings and changed the outlook to positive from stable.

“The positive outlook reflects our view that the group will defend its excellent competitive position and conservative capital management via further earnings diversification by divisions,” S&P said in the ratings announcement.

S&P said that Munich Re continues to demonstrate a sound operating performance, with strong and improving underwriting performance in its various operations increasing diversification, which compares well with peers.

According to S&P, Munich Re’s earnings diversification has improved significantly in the past couple of years.

In the first half of 2023, Munich Re generated strong and well diversified earnings, backed by a reported net income of €2.4 billion ($2.6 billion), an annualized ROE of 16.9 percent, and combined ratios of 83.5, 84.7, and 91.6 in the property/casualty reinsurance unit, ERGO Germany, and ERGO International, respectively, based on IRFS 17 accounting standards, S&P reported.

S&P believes Munich Re is well placed to continue to leverage favorable global reinsurance pricing. The rating agency expects the group will post a net income of about €4.0 billion-€4.5 billion ($4.4-$4.9 billion), with a return on equity (ROE) of above 14 percent and a consolidated combined ratio of about 89-91 (based on IFRS 17) in 2023 and 2024.

Related article: Will S&P Change ‘Negative’ Reinsurance Outlook to ‘Stable’ in ’23?

Also affirming Swiss Re’s “AA-” ratings, S&P revised the rating outlook there to stable from negative, citing continued improvement in non-life underwriting performance since 2021—in line with S&P’s expectations. The improvement has come about as the result of corrective actions taken by the management team in recent years and a significantly improved pricing environment.

The outlook revision also reflects S&P’s expectation of more to come in 2023-2024, recognizing the strong underwriting results in the corporate solutions segment (combined ratio of 91 in first-half 2023) and P/C reinsurance (94.7). S&P said that with increasing investment income as well, Swiss Re should product net income figures of $2.8 billion and $3.0 billion for 2023 and 2024 respectively. These figures are likely to translate to a ROEs close to 20 for 2023 and 2024.

“We expect the group to continue to benefit from the positive pricing momentum in the P/C reinsurance market and that increases in P/C reinsurance rates will outpace the negative impact of inflation on its claims experience,” the S&P statement said. “Our base case is that, in conjunction with its strongly performing corporate solutions segment, the group should record combined ratios below 95 in 2023-2024,” S&P said, also commenting on the prospect of “more normalized performance” in the life/health reinsurance business in 2024 and 2025, which suffered depressed profitability in recent years due to COVID-19-related losses.