Premium growth has been quite hazardous, while collection dwindled down by 2% in 2015. Even major reinsurers’ premiums are struggling to grow, striving more for their profitability than for their portfolio volume.
In 2017, the premium rates of non-proportional treaties will continue their decline for the fifth consecutive year. The next renewal may end up with a decrease in rates of about 5%.
The same negative outlooks regarding profitability, which, like growth and tariffs, is poised to decline. For 2017, return on shareholder’s equity is likely to be comprised between 7% and 9%, nowhere near the 14% and 15% reported in the previous years.
Despite this bleak picture, the reinsurance business remains quite appealing. Alternative funds, that make recourse to reinsurance for the profitability they cannot obtain in the other economic sectors, did learn the lesson.
In fact, lingering low interests are a blessing in disguise for reinsurers. It just compels them to go back to their roots and achieve the profits that they can no longer make out of their financial investments.
The equation is now simple. Reinsurers are required to size up their strategy between growth, profitability and solvency, especially that medium-term perspectives are quite promising. The market is anything but saturated, with a quarter of the current premiums coming from emerging countries. This proportion will considerably increase on the medium term basis. According to Swiss Re, emerging markets should account for a windfall of 100 billion USD in reinsurance premiums and 1500 billion USD in direct premiums by 2020.