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FOR IMMEDIATE RELEASE
OLDWICK - OCTOBER 01, 2015 02:00 PM (EDT)
The stock process of publicly traded reinsurance companies ended the second quarter of 2015 well above the overall market, driven by the continued benign loss environment and strong performance by the large four European companies: Swiss Re, Munich Re, SCOR and Hannover Re, according to a new A.M. Best special report.
The Best Special Report, titled, “Reinsurance Industry Facing More Challenges Ahead But For How Long?,” states that of the 18 publicly traded worldwide reinsurers (including the four top European players), just three had negative performances during the first half of 2015. In addition, the group of followed public companies saw an average share price increase of 8.1% compared with the market total return of -0.2% during the first half of 2015. However, the report notes the market has taken a turn for the worse so far during third-quarter 2015, and returns for most companies are officially negative for the year.
Regardless of the low level of losses and continued favorable reserve releases from prior years, pricing pressures for catastrophe business were well evident for 2014 and continued during the June/July 1 renewals. June 1, 2015, renewals reported a decline in reinsurance price between 5%-10%, and, in some cases, price declines were a bit higher depending on risk and loss experience. The dramatic price declines in 2014 and so far in 2015 continue to be attributed to the lack of market-changing losses, increased retentions carried by ceding companies and the abundance of capital in the market.
During the second quarter of 2015, half of the companies beat the consensus estimates in part due to lower catastrophe losses and continued reserve releases. The market remains challenging and returns are starting to show signs of stress. Of the 14 reinsurers that have announced year-end results and are followed by analysts, half met or exceeded consensus estimates of operating earnings per share. The best performers in the quarter, compared with consensus, included Arch and Alleghany, which exceeded estimates by 12.6% and 13.8%, respectively, likely due to higher than expected favorable reserve releases and also possibly lower than expected catastrophe losses versus consensus.
Merger & acquisition deals are expected to continue in 2015 as certain companies realize the need to create a more diversified and global book of business. As the market continues to remains challenging and competition intensifies, companies are under pressure to deliver underwriting profits, so the need for a wider footprint and broader scale becomes fundamental for companies competing in the current market.
The new reality for the reinsurance market looks to be more of an industry where returns are less impressive and underwriting will have to become a larger contributor to profits and returns leading to more conservative risk selection, more diversification of product offerings, a wider geographic reach and conservative loss picks.
For the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=242024 .
A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source.