Global multiline insurers (GMIs) typically benefit more from favorable conditions than other insurers and suffer less when times are tough, with last year being no exception due to their idiosyncratic competitive advantages. The GMIs navigated inflation, market volatility, and geopolitical turmoil well in 2022, and look set to do the same this year. While ongoing inflation is likely to increase both the average cost of claims and general expenses, we believe that higher investment yields will support profitability. At the same time, underwriting discipline in property/casualty (P/C), especially in commercial lines, will sustain robust operating performance in the non-life segment. Financial market volatility, notably the rapid changes in interest rates, is hitting life business the hardest as it will take time for higher rates to benefit investment returns.

We rate the core operating entities of 16 GMIs globally (see table 1), with the average rating of 'AA-' at the top end of the range in our portfolio of insurance ratings. These insurers operate in many key markets, both developed and emerging, and account for a significant proportion of the insurance business across the world. Six are domiciled in North America, six in Europe, and four in Asia-Pacific (APAC). Most write life and non-life business, although some specialize in one of the two segments. The 16 GMIs' main characteristics are business and geographical diversification, which underpins resilient profitability (see chart 1), and robust capitalization, with lower levels of balance sheet volatility (see chart 2).

Table 1

Chart 1

Chart 2

P/C Was The Clear Winner Of The 2022 Earnings Race

All the GMIs with P/C businesses reported combined ratios of below 100%, which indicates an underwriting profit, and some were even close to 90%. Commercial lines generated strong profits when tariffs were favorable, and claims remained under control. This was especially noticeable for large players focused on commercial lines such as Chubb, AIG, Zurich, QBE, and AXA. Personal lines were also profitable in most markets, but less so than commercial lines, as claims inflation and natural catastrophes had a greater effect, and tariff increases take longer to be implemented. In the U.S., personal lines were not profitable due to a deterioration in personal auto results. COVID-19 no longer had a meaningful impact on most players, with a few exceptions in APAC, after having distorted P/C players' performance indicators in different ways in 2020 and 2021.

We expect P/C to continue to enjoy superior profitability

This is thanks to the GMIs' willingness and ability to pass on the inflated cost of claims to policyholders. Despite some potential depreciation on illiquid assets, GMIs will also benefit from the more favorable environment for investment returns, as the duration of their fixed-income investments is typically shorter than investments backing life-savings liabilities. That said, the severity of recent natural catastrophes and the concomitant increase in the cost of reinsurance protection could undermine this positive trend.

Life Performance Was Also Robust In 2022

There was some divergence across the sector, with several large U.S. groups reporting lower earnings than in 2021 due to mark-to-market effects. The significant market movements, notably on interest rates, also affected some derivative instruments.

Life-savings business will gradually benefit from higher interest rates, but we expect this to take time to materialize, and possibly affect the GMIs' business mix in the near term. A push on the sale of unit-linked or separate-account products would be less effective if general-account products become more attractive, both to policyholders, because of higher credited rates, and to insurers. Indeed, higher interest rates typically reduce the capital requirement gap between general account and unit-linked products as a guaranteed return is easier to achieve.

GMIs did not disclose many large exceptional items in 2022, although a few players had to impair goodwill due to either idiosyncratic situations, or a drop in the value of investments or subsidiaries domiciled in Russia or Ukraine. Overall, only Aegon and Prudential Financial published a net loss for the full year due to such one-off items.

Rising Rates Stymie Hybrid Debt Issuance And M&A

Higher interest rates and credit spreads make hybrid debt issuance more expensive to the GMIs, as well as other insurance groups. As such, we expect a gradual increase in pressure on insurers' fixed-charge coverage ratios when they refinance maturing instruments. This situation is not conducive to mergers and acquisitions, as the GMIs funded most of their recent transactions by issuing hybrid instruments, at least in part. The rise in interest rates last year caused most of the GMIs to report unrealized capital losses, or material declines in unrealized gains on their fixed-income investments. This triggered a decline in shareholders' equity and increased the GMIs' leverage ratios, but not to the extent that it affected our view of their overall financial flexibility.

Underlying Performance Indicators Provide Valuable Insight In Volatile Times

Last year saw much volatility in both the fixed-income and equity markets, but the GMIs did not record this volatility consistently in their financial statements. Full-year 2022 financial statements are now available for all the GMIs except Tokio Marine Group, as its accounting year runs from April to March.

Some accounting frameworks instruct insurers to reflect the volatility of their financial assets in the profit and loss (P&L) account, even if they did not sell the assets during the year. Under other frameworks, only some financial assets are marked to market, with an impact on the P&L. The rest of the impact is on shareholders' funds. For this reason, indicators that reflect the GMIs' underlying performance, such as combined ratio for P/C activities, or new business value and margin for life activities, are as important as bottom-line performance indicators.

EMEA-Based GMIs: Year-End 2022 Earnings Summary

Aegon group

In October 2022, Aegon announced its intention to sell its Netherlands-based pension, life, and non-life insurance, banking, and mortgage origination activities to ASR Nederland (ASR) for a combination of cash and equity shares. We expect the transaction to be complete in the second half of 2023. Aegon recognized a net loss of €2.5 billion in 2022 (€1.7 billion gain in 2021). This resulted from an impairment loss from classifying the Netherlands business as held-for-sale following the announcement of the transaction with ASR, as well as overall market volatility. The group's operating income for 2022 was €1.9 billion, which was stable compared with the previous year. The sale is likely to mean that Aegon's premiums will fall by 11%, or €1.7 billion, from the year-end 2021 level of €15.4 billion. Aegon's regulatory solvency II ratio remained at 208% at year-end 2022.

Allianz group

Allianz's net income of €7.1 billion and combined ratio of 94.2% for year-end 2022 are in line with our expectations. With reported operating profit of €14.2 billion in 2022, Allianz exceeded its targets for the year and retained strong earnings of €6.7 billion. Strong results in the second half of 2022 indicate that past governance issues at subsidiary Allianz Global Investors U.S. and weakening business conditions did not materially impair the group's inherent business strengths. Allianz's total revenues increased by 2.8%, largely driven by growth in the P/C segment due to rate hikes and an increase in volumes. We forecast that operating profit in 2023 will remain similar to the 2022 level, with earnings surpassing €8 billion, as the contribution from the group's flagship asset management business recovers. Allianz's regulatory solvency ratio remained comfortable at 201% at the end of 2022, which comfortably meets Allianz's target of more than 180%.

Aviva group

Aviva reported a strong operating profit of £2.21 billion at year-end 2022, supported by strong capital generation in its life business and a robust combined ratio of 94.6% in its non-life business. While the group reported a £1.14 billion loss after tax under International Financial Reporting Standards (IFRS), this derived from mark-to-market movements on its bond portfolio as a result of interest rate volatility. Aviva records this on its income statement rather than in other comprehensive income, as most of its global peers do. We expect Aviva to maintain its strong underlying operating performance over 2023-2024. At the same time, we expect the group to manage its risk-based capital measured using our model at the 'AA' level, considering its planned capital return to its shareholders.

AXA group

For full-year 2022, AXA reported a solid net income of €6.7 billion and a combined ratio of 94.6%, which is in line with the prior year. A drop in hedging valuations, asset impairments, and a goodwill impairment for a Russian subsidiary adversely affected net income. Revenue expanded by only 2% in 2022 because AXA's focus on preferred lines of business and reductions in activities it considers higher risk led to a 27% drop in reinsurance premiums and a 16% drop in traditionally guaranteed life insurance revenue. Underlying profits on a like-for-like basis increased 7% thanks to significant tariff rises in commercial lines, good control over P/C claims costs, higher investment income, and an increase in technical life margins. AXA's solvency ratio remained stable at 215% at year-end 2022, compared with 217% at year-end 2021, and above its target of 190%.

Mapfre group

Mapfre reported a solid net income of €1.09 billion at year-end 2022 (versus €1.04 billion in 2021), reflecting the benefit from the group's geographical and product diversification. Mapfre reported a stable combined ratio of 98.0%, and non-life premiums grew by 12% compared to 2021. On the life side, net earnings more than doubled, notably because of lower COVID-19-related claims. Overall, life premiums grew 6.4%, with 30% growth in Brazil, partly offset by a 9% contraction in Iberia, notably due to Mapfre's exit from its stake in Bankia's Spanish insurance business. A drop in investment values due to a rise in interest rates has weakened Mapfre's shareholders' equity. Nonetheless, the group posted a robust Solvency II ratio of 217% at September 2022, compared to 206% at year-end 2021.

Zurich Insurance group

Zurich reported a strong operating profit of US$ 6.5 billion in 2022. A stable combined ratio of 94.3% reflects premium rate increases offset by heightened inflation in most regions and lines. Lower capital gains, a loss on the sale of Italian back books, and other charges relating to hyperinflation in Latin America dented net income. However, US$1.4 billion of management fees from the Farmers business segment is a stable income stream and remained an important contributor to net income. Overall, net earned premiums increased by 3%, reflecting strong growth in P/C and Farmers premiums offset by a drop in life premiums. We expect the German life legacy back-book deal to be completed in the second half of 2023, pending regulatory approval, lowering interest rate sensitivity further. Zurich's regulatory Swiss solvency test ratio improved to 265% at year-end 2022, compared with 212% at year-end 2021.

North American GMIs: Year-End 2022 Earnings Summary

American International Group

AIG's net earnings for full-year 2022 improved to $10.2 billion from $9.4 billion in the prior year. The increase was largely driven by net realized gains on Fortitude Re funds; withheld embedded derivatives; strong general insurance underwriting results that nearly doubled to $2.0 billion from the prior year; and lower interest expenses benefiting from liability management actions. Lower alternative investment income and call and tender income partly offset the increase. AIG's P/C combined ratio improved to 91.9% in 2022 from 95.8% in 2021. Shareholders' equity fell 39% to $40.0 billion at year-end 2022 from $66.0 billion one year before. The decline was due primarily to a negative swing in accumulated other comprehensive income of $28.8 billion, mainly attributable to the mark-to-market impact of rising interest rates on the fixed-income portfolio. AIG also returned $6.1 billion to shareholders.

Chubb group

Chubb's full-year 2022 consolidated net premiums written were up by 10.3% to $41.8 billion at year-end 2022. P/C net premiums written were up 7.7%, reflecting a strong pricing environment for most commercial lines. Life net premiums written increased 47.1% to $3.64 billion, including six months of contributions from the Asian business that Chubb acquired from Cigna. P/C underwriting income was a record $4.56 billion, up 23.2%, with a peer-leading combined ratio of 87.6%, compared with 89.1% in the prior year. Shareholders' equity fell 15% to $50.5 billion at year-end 2022. The decline was primarily due to net realized and unrealized losses of $10.9 billion in Chubb's investment portfolio, principally due to the mark-to-market impact of rising interest rates on the fixed-income portfolio. Chubb returned $4.4 billion to shareholders. Net income was $5.31 billion, partially offsetting these factors.

Manulife Financial group

Manulife continued to report strong earnings despite the challenging market conditions. Its core earnings were C$6.2 billion in 2022, a 5% decrease from the prior year. Lower core earnings were primarily due to reduced new business in Asia and the U.S. and decreased in-force earnings in U.S. annuities, in turn, due to a variable annuity reinsurance transaction and higher charges from the P/C reinsurance business in 2022. These items were partially offset by higher yields on fixed-income investments, lower expenses in the corporate and other segment, and in-force business growth in Asia and Canada. Geographically, the Asia business generated about C$2.1 billion in core earnings in 2022--approximately 33% of the group's total core earnings, excluding corporate and other business and core gains followed by the U.S. with 26% and Canada with 21%. Global wealth and asset management provided additional sources of earnings, accounting for C$1.2 billion or 19% of earnings in 2022. As of Dec. 31, 2022, financial leverage (including unfunded pension obligations, the present value of operating leases, and hybrids) was around 28% on a reported equity basis.

Metlife group

In 2022, MetLife reported adjusted earnings of $5.5 billion, down from $7.9 billion in 2021. This result reflects improved earnings in the group benefit segment stemming from lower COVID-19-related claims, combined with record-high pension risk transfer sales. These improved earnings were offset by lower variable investment income than in the prior year. The positive impact of rising rates is evident in MetLife's new money yield of 5.66%, which is about 150 basis points higher than the roll-off rate. MetLife maintains a solid holding-company cash position, with $5.4 billion in cash and short-term investments as of Dec. 31, 2022, above its target of $3.0 billion-$4.0 billion. As of Dec. 31, 2022, financial leverage (including unfunded pension obligations, the present value of operating leases, and hybrids) increased to 49.5% on a reported equity basis because of higher unrealized losses. Excluding accumulated other comprehensive income, adjusted financial leverage was 31.3%.

Prudential Financial group

Prudential Financial (PRU) reported adjusted pretax operating income of $4.6 billion in 2022, down from $7.3 billion in 2021. The company's U.S. arm, PGIM, as well as the international business segments, reported weaker results. Lower asset management fees overall, driven by a reduction in assets under management, and a decrease in variable investment income were two of the key reasons for the decline in operating income. On the other hand, PRU benefitted from an improved COVID-19 mortality rate, higher net spread results due to rising interest rates, and underlying business growth. As of Dec. 31, 2022, financial leverage (including unfunded pension obligations, the present value of operating leases, and hybrids) increased to 49% on a reported equity basis because of higher unrealized losses. Excluding accumulated other comprehensive income, adjusted financial leverage was 30.8%.

Sun Life Financial group

Sun Life's adjusted earnings for 2022 increased by 4% to C$3.7 billion. The increase in earnings was thanks to strong underwriting, especially in the latter half of 2022, in all its key markets (Canada, the U.S., and Asia). COVID-19-related mortality and morbidity rates have moderated relative to the prior year. The strong results were offset by a declining contribution from the asset management business, mainly arising from lower fee income due to net cash outflows resulting from industry-wide redemptions in both retail and institutional businesses. We expect Sun Life's earnings to continue to grow as it continues to focus on its four-pillar strategy and to benefit from the reopening of the border between Hong Kong and China and the lifting of COVID-19-related restrictions in China. This is despite near-term headwinds for its asset management business.

Asia-Pacific GMIs: Year-End 2022 Earnings Summary

AIA group

Like those of its peers, AIA's net earnings contracted to US$282 million in 2022 (2021: US$7.5 billion), due to unrealized losses from its investments and hedge derivatives for its participating business. While the hedge-related losses of US$2 billion are huge, there are limited rating implications as the liabilities are not mark-to-market. AIA's operating profit after tax was stable, at close to the 2021 level of US$6.4 billion. AIA increased the total dividends it declared to HK$1.54 per share in 2022 (2021: HK$1.46 per share), and paid out US$3.57 billion as part of its three-year US$10 billion share-buyback program. That said, the group's early adoption of the Hong Kong risk-based capital regime allows the release of the resilience margin built up in its value of in-force into equity, limiting the erosion of the capital buffer.

Prudential PLC group

Prudential's 2022 net income of $1 billion and resultant return on equity of 5.9% are below our previous forecasts of $2 billion and 10%, respectively. This was largely due to nonoperating losses, such as investment losses resulting from higher interest rates and equity price declines. However, Prudential's underlying operating results were strong, with sales--as measured by annual premium equivalent--increasing 9% and group operating profit under IFRS of 8% compared with 2021. We believe that the group has demonstrated its excellent competitive position in its growth and operating profit in the key strategic markets of India, China, Thailand, and Indonesia. Performance in the second half of 2022 was strong, rebounding from the $106 million in net income reported at the half-year point. We also expect a return to more normal results in 2023 following the reopening of the border between Hong Kong and China and the lifting of COVID-19-related restrictions in China. We expect capital adequacy to remain resilient and a strength for the rating, as evident from the groupwide supervision ratio of 307% at year-end 2022 (320% in 2021).

QBE group

QBE posted a full-year net profit of US$770 million for the year ended Dec. 31, 2022, up 3% on 2021 and above our forecast, with a strong second half. The result reflects recent actions to improve resilience and consistency amid a spike in global natural catastrophes and interest rate volatility. Topline growth was up 13% to US$20 billion on a constant currency basis, with renewal-rate growth of 7.9%. Rate adequacy and disciplined risk selection contributed to an improved statutory combined ratio of 85.7% for the year, or 93.7% adjusted for the risk-free rate impact. The previously problematic North American division returned to an underwriting profit, with ongoing actions around rate adequacy, improved risk selection, and targeted remediation. This is a solid result considering Hurricane Ian and the broader inflationary pressures for the region. QBE's US$1.9 billion reinsurance transaction with global insurer Enstar Group Ltd. to de-risk its long-tail reserve exposure will support earnings resilience and credit strength, in our view. This is especially the case at a time of social and economic pressures in the U.S. and Europe.

Tokio Marine group

Tokio Marine group's performance up to the third quarter of fiscal 2022 (ending March 2023) saw the negative effects of an increase in losses related to COVID-19 in Taiwan and Japan, as well as natural catastrophe losses, mainly in Japan. Consequently, the group reported net earnings of JPY¥327.8 billion in the third quarter, which was a decline of ¥145.1 billion year on year. While the earnings from the domestic P/C and life insurance businesses declined, the group benefited from its business diversification, as the international business, particularly in the U.S., largely supported both premium growth and profits. Despite the impact from natural catastrophes and COVID-19, the group reported combined ratios below 100% at the end of the third quarter, thanks to its focus on maintaining fundamental underwriting profitability. The group maintains its economic value-based solvency ratio (value at risk: 99.95%) around 120%-130%, which is within the target range of 100%-140%. We forecast higher earnings in fiscal 2023, mainly because we assume lower COVID-19-related losses and normalized catastrophe-related losses.

GMI Ratings Remain At The Top End Of The Range In Our Insurance Ratings Portfolio

The operating entities of the 16 GMIs we rate continue to have high ratings--ranging from 'AA' (25% or four), 'AA-' (50% or eight), and 'A+' (25% or four). The majority of our outlooks on the insurers remain stable, with just two negative outlooks, on Aegon and AIG. That said, we continue to monitor GMIs' operating performance, but also their capital management policies, as they have all announced share buybacks on the back of the solid 2022 earnings and robust solvency indicators. Returning this capital to shareholders supports stock prices, but means that it is no longer available in the event of a significant market downturn or an exceptional event.