Global Reinsurance companies are also more optimistic about pricing, as they expect price hardening in the wake of the significant third-quarter losses, and more recently the California wildfires. This view is supported by the findings of a Moody's survey of reinsurance buyers, which indicates that reinsurance buyers expect to pay more for cover on loss-affected lines during the 2018 renewals, with almost half of the survey respondents expecting prices to increase by over 7.5%.
"Reinsurer balance sheets remain resilient, as reinsurers have maintained sizeable capital buffers and reduced exposure to property-catastrophe risk in line with declining price adequacy," said Brandan Holmes, a Vice President and Senior Analyst at Moody's.
"Despite heavy losses in the third quarter, we still expect most rated reinsurers to be profitable for the full year." Overall reinsurance prices have declined since 2012, driving down profitability of the sector, but are now nearing a point of stabilization. Reinsurance prices will also be supported following a series of third-quarter catastrophe events, and Moody's expects that prices will tighten across most property lines, but particularly in loss-affected regions such as Florida and the Caribbean. Improved pricing should contribute to stronger profitability for reinsurers, although we expect profitability to remain lower than pre-2012 levels due to the extent of price softening that has occurred, and the stubbornly low interest rate environment.
The stable outlook for reinsurers is also supported by M&A activity in the sector that has removed some of the smaller or weaker reinsurers from the market, raising the average credit profile of the remaining companies. M&A activity is being supported by a number of factors including, a desire by smaller reinsurers to be absorbed into larger, more diversified groups amid difficult market conditions , while larger companies are looking to increase capacity or diversify their exposure profiles. The incentives for M&A will remain in 2018, but the number of target companies is now diminished.
The report, "Reinsurance -- Global: 2018 Outlook stable, underpinned by strong balance sheets"
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