Atlas Magazine October 2014

Reinsurance, an indestructible market

Nothing seems to shake reinsurance. Neither the September 11 attacks, nor cyclones, nor tsunamis and earthquakes, nor nuclear catastrophes like Chernobyl or Fukushima, nor the economic and financial crises of recent years, stand in the way of an activity which is resisting well.

Ironically, capitals have flown more often following the occurrence of major catastrophes. As if the business thrived and prospered on losses.

Disappointed by the prevailing difficult financial markets, capital owners are rushing in great numbers to reinsurance attracted by its 10% annual return on investment reported over the past five years. Competition caused by overcapacity has certainly eroded reinsurers’ profitability but compared to other sectors, the industry remains quite attractive to capital in search of profitability.

It was in the late 1980s that the capacities, mostly American ones established in Bermuda for tax reasons, had massively rushed to reinsurance. The first time, to meet the local markets’ needs of third party liability cover for executive staff after the Enron scandal. The second time in 2001 to compensate for the shortage of terrorism and attacks capacities after the catastrophe of the World Trade Center. Finally, a third time in 2005 to invest the natural catastrophe market drained by the Katrina loss.

In 2013 new capacities from Asia are emerging. China Re and Korean Re, the two locomotives of the region are within the top 10 global reinsurers.

In 2014, despite the excess of capital, reinsurance continues to seduce. New alternative forms of coverage: securitization, cat bonds are added to existing traditional capacities.

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