A.M. Best: Global Re Stocks Underperform as Catastrophe Prices Drop

Stocks for publicly traded reinsurance companies (including the four large European reinsurers) performed well below the overall market through the third quarter of 2014, driven in part by the increased volatility in the overall equity markets and amplified by continued concerns over the increasing competitive pressures on reinsurance pricing, terms and conditions.

Of the 20 publicly traded reinsurers examined, just one stock has performed better than the overall market and 10 stocks have trended in positive territory thus far in 2014. Overall, average stock returns this year are flat compared with year-end 2013 and the market’s total return of 6.7 percent for the same period, according to the Best’s special report titled, “Global Re Stocks Underperform as Catastrophe Prices Decline.”

Despite the low level of losses and continued favorable reserve releases from prior years, pricing pressures for catastrophe business continued to overshadow the prospects of this sector during the third quarter, the report said.

During the first nine months of 2014, reinsurance companies saw catastrophe price declines of 20 percent in some cases (more pronounced in the United States), the report continued.

The dramatic price declines this year reflect the ongoing lack of market changing losses, as well as increased retentions by ceding companies and the inflow of capital (reinsurance capacity) from the capital markets, largely in the form of insurance-linked securities.

Alternative capacity provided by the capital markets has remained a focus in 2014, and A.M. Best expects this to persist. In 2013, there was USD$7.6 billion in cat bonds issued versus USD$6.15 billion issued in 2012. Thus far in 2014, the market has seen close to USD$6.3 billion in cat bonds come into the market.

Investors’ unabated interest in cat bonds, particularly for U.S. risks, and the lack of any major losses over the past few years continue to drive down prices for global risks, including European wind, U.S. hurricane and Japanese cat exposures, according to A.M. Best.

Source: A.M. Best

Topics Catastrophe USA Reinsurance AM Best