Atlas Magazine February 2014

Supply and demand rule

While 2014 got off to a good start for insurers, it looked more challenging for reinsurers who will have to face difficulties according to some analysts. While leading players were hoping to maintain the 2013 tariffs, the January 1 st renewal of reinsurance treaties was achieved by means of clear price reductions, sometimes up to 25%.

This outcome will inevitably impact the 2014 and 2015 reinsurers’ results. As a matter of fact, the reinsurance business that has prevailed since the end of the 2008 financial crisis could not withstand too much pressure.

For the rating agencies, neither productivity gains nor the absence of a sufficiently high loss experience could offset reinsurers’ lower premiums. Standard & Poor's has posted a combined result of 95% to 100% in 2014 and 98% to 104% in 2015, while, according to the same agency, return on equity would go down below 10%.

Overcapacity is the market’s second weakness. The good performance reported by reinsurers in recent years results have attracted an influx of investors seeking high returns from the business.

Overcapacity to which is added the so-called alternative assets (catastrophe bonds, securitization, sidecars ...) plays out in favor of insurers.

Finally, to complete the picture, it is necessary to refer to the decline of demand for reinsurance ceding companies that are gradually improving their risk management, not hesitating to increase their retention.

In light of this slightly gloomy situation, major stock markets have started reacting since mid-January by sanctioning many reinsurers’ stocks.

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