Moody’s Investors Service has maintained a stable outlook for the global reinsurance industry. Moody’s said the outlook “expresses our expectations for the fundamental credit conditions in the industry over the next 12 to 18 months.”
It also “acknowledges the industry’s resilience, improvements in underwriting and risk management, a possible pickup in demand due to impending regulations and hardening in some primary insurance markets.”
However, Moody’s warned that a “large disaster, faltering primary rates or worsening of the global economy could place downward pressure on the industry’s stability.”
The main conclusions contained in the report are as follows:
• Reinsurers have already emerged from the second worst year for insured disaster losses with more capital than they had at the start of 2011. They also emerged with tighter underwriting and better risk management. At the same time, long-awaited hardening in some primary insurance lines is laying the foundation for reinsurance rate stability.
• A key challenge for the industry is competitive convergence, which is making it harder for reinsurers to create distinct strategies. Dwindling prospects in casualty and life reinsurance and low interest rates are steering reinsurers and new capital toward catastrophe (cat) risk.
• The ongoing shift from direct distribution to broker intermediation is making it easier for new entrants to compete.
• The $6 billion influx of new capital, which has entered the sector since 2011 and has raised the amount of alternative capital in the industry to $34 billion, is credit negative for incumbent reinsurers. Particularly when the industry has adequate capital as it does today, as excess capital tends to drive down revenues and margins.
• On the upside, this new capital shows investors are still interested in reinsurance even though they may not be interested in reinsurance stocks.
Source: Moody’s Investors Service