Tough Competition Could Pressure Global Reinsurers Ratings: S&P Report

August 15, 2014

Standard & Poor’s Ratings Services announced that it will publish its annual “Global Reinsurance Highlights” to coincide with the 2014 Reinsurance Rendezvous in September.

The report “will provide a detailed perspective on the market, focusing on the competitive pressures that will impede reinsurers’ ability to generate strong returns, and challenges for the sector to reinforce its relevance to existing and future clients as the global economy continues to evolve,” S&P said.

S&P said the preview article “Tough Competition Could Put Ratings On Global Reinsurers Under Pressure,” published today, “offers an element of the overall picture to be provided in the publication with a view of how these pressures and challenges are affecting our ratings on reinsurers.”

The rating agency stressed that from its point of view, “increased competition has caused premiums to decline. An influx of third-party capital is fueling excess capacity in the industry, exacerbating the problem. The knock-on effects could threaten reinsurers’ competitive positions and their ability to maintain their financial strength. We also see heightened potential for volatility in earnings because of weakened pricing.”

The Report noted, however, that “global reinsurers are working to mitigate the effect on their businesses of the increased competition. In general, we have not yet seen material signs that they have succumbed to the temptation to use inadequate pricing to retain market share. Instead, they are seeking more-profitable markets, or tweaking their investment strategies toward riskier assets to increase investment returns.

“Some of the stronger, more-diversified reinsurers are slightly reducing their exposure to property catastrophe business where prices have fallen materially. Smaller firms are teaming up and forming consortia to gain scale. That said, ratings on reinsurers remain sensitive to changes in our assessment of their business risk profile and risk position.”

As a cautionary note, S&P explained that under its procedures “only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.

Source: Standard & Poor’s

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