Best’s Special Report: Global Reinsurers Look to Reposition Amid Market Disruption

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OLDWICK - SEPTEMBER 05, 2017 09:38 AM (EDT)
The global reinsurance sector is far from thriving and appears to be operating amid malaise, due to declining rates, broader terms and conditions, unsustainable reserve takedowns, low investment yields and continued pressure from convergence capital, according to a new A.M. Best special report.

The new Best’s Special Report, “Down But Not Out: Reinsurers Look to Reposition Amid Market Disruption,” notes for the reinsurance market, the drive and passion to succeed is similar to participating in competitive sports. The report observes that the sector recorded an average accident-year combined ratio of 101.0 and return on equity of 8.2% for 2016, a continuation of the deterioration seen in the sector since 2013. The accident-year underwriting loss is the sector’s first in more than 10 years, with the exception of 2011, which had several significant global catastrophes.

While conditions are challenging, the report states that there are pockets of opportunity within cyber insurance and mortgage reinsurance, and that reinsurers have responded to market conditions by lowering their net probable maximum loss (PML) for peak zones, embracing new opportunities and geographies, producing fee income and subtly migrating into asset classes that will produce increased investment yield. However, A.M. Best believes that even a normal catastrophe year will expose the true ramifications of current market conditions, and that an above-average catastrophe year may be exceedingly damaging.

“If the reinsurance market is booking the accident year combined ratio at a loss in a relatively benign catastrophe year, and that in and of itself is not the impetus for change, the next logical question is: What will it take to turn the market?” asked A.M. Best Senior Director Robert DeRose. “At this point, it does not appear that the lack of underwriting profit in the current book or continued erosion in return on equity will break the cycle.”

A.M. Best has maintained a negative rating outlook on the sector since August 2014, citing ongoing market conditions that are hindering the potential for positive rating actions, and eventually may translate into negative rating pressures.

“There is no doubt that reinsurance market participants are thinking about the potential for disruptive innovation, particularly as many are looking to squeeze out more expense when calculating the cost of insurance and reinsurance,” said A.M. Best Director Greg Reisner. “Although the shifts may not be completely transformational, the end product over time likely will be better and less expensive for the ultimate consumer; however, arriving at that point will be destructive for some.”

Other highlights from this year’s report include:

• The most notable movement in A.M. Best’s highly regarded annual ranking of the Top 50 Global Reinsurance Groups was Swiss Re Ltd. supplanting Munich Reinsurance Company as the world’s largest reinsurer, based on reinsurance gross premiums written, a position it has not held since 2009. Most other movements in the rankings were due to ongoing mergers and acquisitions. This year’s report also breaks out two sub-rankings of top non-life and life global reinsurers.


• Although the growth in convergence capacity has slowed from previous years, it still grew by approximately 10%. A.M. Best estimates that alternative capital represents approximately USD 80 billion of capacity, with the vast majority of capital (USD 345 billion) from traditional sources.


• The global reinsurance report also includes a discussion among A.M. Best analysts and insurance-linked securities professionals on the state of insurance-linked securities, along with in-depth reviews of the Lloyd’s and life reinsurance markets, as well as geographic regions such as Brazil, Asia/Pacific and Africa.

To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=265357 .

A.M. Best will present a webinar, “The Road to Convergence: Global Reinsurance and the ILS Market,” starting today, Sept. 5, 2017, at 10 a.m. EDT, on the state of insurance-linked securities and its role within the global reinsurance sector. Register at no charge at www.ambest.com/webinars/reinsurance17 .

To view a video interview with A.M. Best Senior Director Robert DeRose and Director Greg Reisner, please click here http://www.ambest.com/v.asp?v=globalrereport917 .

A.M. Best also will host its annual Reinsurance Market Briefing at the 2017 Rendez-Vous de Septembre (Rendez-Vous) on Sunday, Sept. 10, 2017, at the Hermitage Hotel in Monte Carlo, Monaco. The briefing will start at 10:15 a.m. and conclude at 11:45 a.m. (CEST). To register online, please click the following link: http://www.ambest.com/events/rmbseptembre2017 .

A.M. Best is the world’s oldest and most authoritative insurance rating and information source.