Reinsurance in a stalemate

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The situation is all the more disconcerting. The different recipes applied during each renewal proved too ineffective to stop falling rates.

Loss experience, reinsurers’ first concern, has been less of a burden on premiums. After a 2017 year particularly impacted by large-scale natural disasters, 2018 rates have hardly increased. In 2017, the market reported 135 billion USD in losses while the annual average for the last 30 years is only 35 billion USD. Despite such a loss experience, reinsurers found themselves on the weak side against ceding companies which mostly imposed their conditions.

Mergers and acquisitions, another solution considered to clean up the market, are not yielding the expected results. As the number of reinsurers declines from year to year, capacity continues to grow, hence, the inefficiency of these moves aimed at adjusting the rates.

The other inconsistency regards the rates that are falling at a time when the market is getting more and more concentrated. The top five reinsurers controlled 53% of the global reinsurance premium in 2017, compared to the 23% reported in 1990.

Alternative or financial reinsurance is not a particularly disadvantageous element either. While it brought an additional capacity of 90 billion USD in 2017, it remained stuck on a particular segment, that of natural disasters. In fact, overcapacity results from the traditional reinsurance that drowned the market with its 516 billion USD in capital at the end of 2017 while the global reinsurance premium is only set at about 250 billion USD.

Atlas Magazine N°155, November 2018 [1]