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The outlook is negative for reinsurers in 2018, says A.M. Best

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January 5, 2018 09:45

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The outlook looks negative for reinsurers in 2018, according to analysts of the company rating A.M. Best. Although it is possible that the market conditions are improving in the short term, several uncertainties related to the level and the sustainability of improvements in the reinsurance market explain the maintenance of the negative outlook for the next twelve months.

A.M. Best estimates that the combined ratio amounted to 110 % for 2017, and that the return on equity is at a deficit of 1 % on a global scale. The firm is also concerned about the fact that the rates for home insurance are «at the mercy» of the capital market alternative and less influenced by the traditional market of the reinsurance, as has been the case historically.

Several factors could be positive for the market

However, the analysts at A. M. Best identify that several factors could have a favorable effect on the reinsurance market. Among those, the firm said that an overall improvement, particularly in the United States, the economic outlook would result in an organic growth and an optimized use of capital surplus.

In addition, the interest rate increase would contribute to a higher flexibility rate and better returns on investments. It would also help reinsurers to fill the significant losses in the wake of disasters. Finally, the phenomenon of consolidation, which is a witness to the reinsurance market could help to improve the effectiveness of the general capacity of the market and greater operational discipline.

Balance sheets are robust to cope with the pressures

Although it is not impossible that these factors are realized, the firm reminds us that everything is uncertain and that the risks that the market remains the same in 2018 are present. Analysts say, however, that they expect that the general results and the sales will improve slightly and that they stabilise in the short term.

A.M. Best maintains that the reinsurers with balances that are robust, a diverse business portfolio and a wide geographical scope are in a better position to face the pressures made by this operations environment and will be able to better identify opportunities to increase profitability.

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