Press Release - DECEMBER 19, 2017
Best’s Briefing: Global Reinsurance Outlook Maintained at Negative
FOR IMMEDIATE RELEASE
OLDWICK - DECEMBER 19, 2017
The Best’s Briefing, titled, “Market Segment Outlook: Global Reinsurance,” states that the market was able to absorb the 2017 events, and that balance sheets remain solid going into the Jan. 1, 2018, renewal season. However, according to the briefing, earnings going into third-quarter 2017 had already been depressed compared with historical trends because of ongoing market challenges. Combined with lackluster investment returns, this has served to drag operating and overall performance to a level just marginally sufficient to cover the average cost of capital for many reinsurance-predominate companies. The negative impact of catastrophe losses on underwriting earnings in 2017 has further eroded the segment’s historical earnings.
A.M. Best also is concerned that property catastrophe pricing is 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, and that any near-term market improvement may be relatively short-lived given the current level of excess capacity in the overall market.
A.M. Best estimates a combined ratio of approximately 110% and a return on equity of -1% for full-year 2017 for A.M. Best’s global reinsurance composite, and a meager five-year average (2012-2017) return of equity of approximately 8%. This does not factor in the potential for further adverse loss reserve development.
The briefing also notes potential factors that could favorably impact the reinsurance market over the near term, and that may be sufficient cause for A.M. Best to revise the outlook to stable from negative, including an improving global economy, rising cession rates and further merger and acquisition activity.
“A potential increase in demand from government risk pools such as the National Flood Insurance Plan in the United States, as well as opportunities in cyber, mortgage and other emerging risks should allow for greater utilization of available market capacity,” said Robert DeRose, senior director, A.M. Best.
In A.M. Best’s view, companies with robust balance sheets, diverse business portfolios, advanced distribution capabilities and broad geographic scope are better-positioned to withstand the pressures in this difficult operating environment and have greater ability to target profitable opportunities as they arise.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=268971 .
A video interview with Greg Reisner, director, and Scott Mangan, senior financial analyst, also is available.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.