Best’s Market Segment Report: Pricing Optimism Fizzles, Proving False Start for Global Reinsurance Industry
The new Best’s Market Segment Report, “Global Reinsurance: Optimism Fizzles, It’s Back to the ‘New Normal,’” states that the reinsurance sector continues to skip along the bottom of the market with no clear trigger for a meaningful and widespread rate hardening. At the same time, the capital markets’ influence on the reinsurance sector continues to expand, replacing capacity lost in 2017 and then some, with an estimated
The reinsurance sector remains attractive to investors; however, returns for traditional reinsurers have been dismal. After normalizing for favorable reserve development, the global reinsurance composite posted a five-year average return on equity of 4.5% at year-end 2017, compared with a five-year average ROE of 6.8% at year-end 2016.
“Property catastrophe pricing is somewhat at the mercy of the alternative capital market and is not as heavily influenced by the traditional reinsurance market as historically has been the case,” said
Although reinsurance pricing did not develop as anticipated, terms and conditions did stabilize, yet remain below expectations for producing a reasonable risk-adjusted return relative to the average cost of capital for most reinsurers. Improvement in interest rates should have a positive impact on the bottom line, but the momentum will emerge gradually as a flattening yield curve is deflating the effects of a rising federal funds rate in
“Much uncertainty remains at this point and the existing risks to the market remain in play—as do one-off risks such as the potential fallout from Brexit and a global trade war and what these may mean to the global economy,” said
In 2014,
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
Munich Reinsurance Company reclaiming the top spot as world’s largest reinsurer, as measured by reinsurance gross premium written. Munich Re has claimed the top spot every year since 2010, with the exception of 2017, when Swiss Re topped the list. Most other movements in the rankings were due to ongoing mergers and acquisitions, most notably Sompo Holdings, Inc., which jumped to No. 22 from No. 46 after having consolidatedEndurance Specialty Holdings Ltd. into its financial reporting. This report also breaks out two sub-rankings of top non-life and life global reinsurers. - In the wake of
U.S. tax reform, manyBermuda -domiciled reinsurers have decreased the size of the inter-company reinsurance arrangements, or eliminated them altogether; moved capital to on-shore balance sheets; formed newBermuda entities that elect to be aU.S. taxpayer; and restructured their treaties from a quota share to excess of loss or stop-loss policies. - The global reinsurance report also explores the state of the insurance-linked securities market following the 2017 catastrophes, along with in-depth reviews of the Lloyd’s and life reinsurance markets, as well as geographic regions such as
Asia/Pacific andAfrica .
To access a copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=277679.
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