Reinsurers back to the wall

Already strained by tariff reduction and low interest rates, reinsurers have serious reasons to worry. The profits reaped in recent years were only possible because of a low loss history of natural catastrophes risks. Yet, during the second half of 2017, an unprecedented succession of cyclones along with other earthquakes comes as a clear reminder that the market fundamentals remain fragile.

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The ills that have undermined the sector for numerous years are still present today. The non life reinsurance premium has declined by 4% during the recent two years with hardly any prospects for any improvement at the global level.

With regard to technical results, the year 2016 ended with a combined ratio close to 100%. For 2017, this indicator would be well above this threshold. Finally, still for the ongoing year, reinsurers’ profitability is expected to fall considerably, following the initial decrease sustained in 2016.

On a highly-concentrated market, an energetic response from particularly the five major leaders of the market is expected in an effort to bring margin erosion to an end and to offset losses

Unfortunately, reinsurers have hardly any operational margin. Excess of the capacities provided gives a distorted version to reality. Reinsurance supply remains above demand, hence the ongoing exacerbated competition. Consequently, the rates are not poised to undergo any generalized increase for 2018. Maintaining current tariffs would actually be regarded as a sign of recovery.

Reinsurers back to the wall

Atlas Magazine N°145, November 2017 [1]