Best’s Reinsurance Industry Report Examines Relevancy of the Underwriting Cycle

September 9, 2014

A.M. Best has released its annual segment review of the global reinsurance industry, titled “How Relevant Is The Underwriting Cycle?” The special report includes a ranking of the top 50 global reinsurance groups and geographic breakouts of reinsurance segments.

The report confirms that capital continues to be drawn to the reinsurance industry despite the fact that fundamentals are trending in the wrong direction. The report also explores whether the traditional underwriting cycle has grown distorted and notes that the flurry of convergence capital has triggered behavioral changes by the market’s traditional players with more company names appearing for the first time on reinsurance programs in atypical geographies.

Best also pointed out that it has recently revised its ratings outlook on the global reinsurance industry to negative from stable.

The report also includes the following topics:
• Investors continue to turn toward catastrophe bonds to improve investment performance, despite risking the entire principal over a relatively short-term period. The report notes a pattern in the catastrophe bond market: the increasing value of certain bond issues and declining coupon payments. In 2013, 30 percent of the issues increased in size before the deal was completed. So far in 2014, 39 percent of the issues have increased in size, implying a continued increase in demand for certain market offerings.
• Most traditional reinsurers maintained their market share, according to A.M. Best’s annual top 50 ranking of global reinsurance groups in 2013. The majority of movement occurred among the ranking’s bottom two-thirds.
• Lloyd’s continues to be a significant writer of catastrophe and reinsurance business, with reinsurance representing 36 percent of gross premiums in 2013; however, after several years of reinsurance premiums increasing, particularly after the catastrophe-affected years of 2010 and 2011, gross premiums fell 3 percent in 2013 from 2012, reflecting softening market conditions.
• Most Asian reinsurers’ results were favorable in 2013, but a dramatic softening of the market, in line with the global market, along with consolidation, may increase potential volatility.
• The underwriting performance of MENA (Middle East & North Africa) domiciled reinsurers is varied. Those companies that have a strong presence in a single market, benefiting from compulsory cessions or have limited their exposure, have demonstrated a track record of profitability.
• Africa’s highly competitive insurance markets continue to attract scrutiny and rising interest from around the world, particularly from parties in the United States and Europe. Also, a number of African economies are growing faster than their mature counterparts, with demand being boosted by energy, construction and mining projects.

Source: A.M. Best Company

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