Reinsurance, the lingering war

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Reinsurance, seemingly unperturbed and standing against all odds, represents an attractive alternative for capital investment in search of substantial returns.

The average ROE reported by the market amounts to roughly 10% in recent ten years. Moreover, the business, exhibiting great resilience to crises, is developing at a higher pace than that of insurance, with an annual average rate of 4% compared to 1.76% for the direct business.

In fact, capital inflow is only compounding overcapacity for more than a decade, facilitating the task for major reinsurance giants. This overcapacity of traditional markets gets small players under pressure as the latter are not endowed with critical mass nor are they outfitted with a portfolio diversified enough to withstand this lingering war of attrition witnessed by the market.

The 2019 treaty renewal will add nothing new with rate competition, declining reinsurers’ margins, overcapacity, concentration, being on the agenda to fuel debate and discussions.

Nowadays, nothing could substantially change in the reinsurance sector. Only a major event such as a global financial crisis, an outstanding natural disaster affecting a major country could impact the capitalization of reinsurance companies and fold down the business cards.

In order to stay alive, there is no other choice for small players but to do better than major ones. They are required to find this surplus of capital growth to preserve both market shares and positions.

Atlas Magazine N°156, December 2018 [1]