Reinsurers that have established a strong foundation of proven, effective underwriting and reserving principles, especially those with diversified portfolios, will have the best chance to remain relevant and profitable in the current market.
This is the finding of rating agency AM Best in its latest report, 'Global Reinsurers Continue to Withstand Challenging Dynamics'.
Pressure on reinsurance pricing, fuelled by more than adequate capacity in the market and low catastrophe loss activity, continues to result in compressed profit margins for reinsurers, according to the rating agency.
“The reinsurance market also continues to deal with the impact of broader contract terms and conditions, in addition to the tag-team of low investment yields and continued pressure from alternative capital in the reinsurance sector that threatens operating profitability,” said AM Best.
It added that the hyper-competition for reinsurance opportunities limited in number by the strong balance sheets of primary insurers has meant that portfolios of global reinsurers are being weighted more toward primary business.
However, increased pressure is mounting in this sector as well with property pricing pressures becoming more acute, even on the primary property side.
Pressure from the insurance-linked securities (ILS) market, in which Bermuda is a big player, has also contributed to the competiveness of the primary lines market.
Certain Bermuda reinsurers have been able to generate sizeable increases in the year-over-year gross premium written (GPW), which AM Best suggests has been driven by acquisitions made by companies over the past 18 months.
XL Group, for example, has reported a 76 percent increase in GPW, through its merger with Catlin Group. Similarly, the acquisition of Platinum Underwriters by ReinaissanceRe led to a 34 percent increase in top line premium.
“With the desire for increased portfolio diversification and enhanced global presence in the reinsurance marketplace, interest in merger and acquisition (M&A) activity is expected to remain a very prevalent factor in the near-term reinsurance marketplace,” added the rating agency.
AM Best, Insurance, Reinsurance, Bermuda, North America, Property, Catastrophe, XL Catlin, ReinaissanceRe, ILS,