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Reinsurers face again, interest rates decline

by

Andrea Lubeck

June 28, 2017 11:30

The reinsurance market is facing, once again, to falling prices. According to the firm’s rating S&P, the abundance of capacity from reinsurers combined with insured losses modest for several years would be the main cause.

In addition, she adds that the industry is facing a strong competition between its players, while sources of capital alternative continue to assault the market and put aside the traditional players, especially in the areas related to disasters, pushing rates downward.

The rate continues to decline

The firm notes that several industry reports show that prices are still down, although they fell less than in the previous year. The Global Property Catastrophe Rate-on-Line Index of the reinsurer Guy Carpenter points out that the price for a renewal by 1 January 2017 decreased by 3.7% compared to 8.8 % for the same period in 2016. This regression has also been noted in April, with a decline by an average of 5 %.

However, the reinsurer JLT Re advised that the renewal of June 1, 2017, the decline rate has accelerated, amounting to 5.1 % from 3.1 % at the same date the previous year. This is the sixth consecutive year of declining rates, according to the index Risk-Adjusted Florida Property-Catastrophe Rate-on-Line of JLT Re.

The insured losses to return to a normal level

S&P argues that the insured losses related to disasters are returned to a normal level in 2016, amounting to $ 54 billion, or slightly more than the 10-year average for the first time since 2012. Despite this, reinsurers have managed to keep good levels of capital throughout the year.

Furthermore, 8 % to 10 % of the combined ratio were attributable to the disaster in 2016. In 2014 and 2015, it was 3.7 % and 2.8 %, respectively, for the 27 largest reinsurers.

Reinsurers are adapting

Reinsurers use multiple methods to adapt to an environment where interest rates remain low, especially by returning to a sound underwriting discipline. In his discussions with the leaders of the industry, S&P has identified other strategies adopted by reinsurers, which include the continuation of mergers and acquisitions in order to benefit from greater diversification and a larger scale, to expand its insurance activities in primary.

In addition, they claim to offer more tailor-made solutions from the sectors related to disasters, which are under pressure in terms of price. They underwrite less business in the sectors where the opportunities are reduced, and return the excess capital to shareholders.

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