20 September 2018 13:30
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The reinsurance industry is facing challenging market conditions, despite the modest rate increases in 2018, wrote in a report the firm’s credit rating S&P Global. This observation comes in the wake of the annual meeting of the Rendez-vous de septembre in Monte-Carlo, which brings together reinsurers, insurers, brokers and other industry specialists
The number of natural disasters in 2017 have led to a rise in the rate of reinsurance of approximately 5% on renewals of 2018. During the meeting in Monte-Carlo, the participants were of the view that rates will remain rather stable for 2019. S&P attributes this stability to capital, traditional and alternative, who have ” a significant amount of capacity “.
The numerous mergers and acquisitions have marked 2018, according to the firm’s credit rating. However, ” growth opportunities remain limited, and the ceding insurers are increasingly demanding “. S&P clarifies that reinsurers portfolio of extended products and strong underwriting capacity provide the best value to insurers, which helps to establish long-term relationships.
Mergers and acquisitions involve risks, has noticed the industry. “In 2018, we have observed transactions involving primary insurers, reinsurers and players in the securities related to the insurance, indicating that these markets increasingly converge. The context of competitive pricing of reinsurance will continue to support the operations of mergers and acquisitions, ” said S&P.
The reserves would contribute to the volatility
Industry players have acted, at the annual meeting, in addition to natural disasters, the reserves are part of the factors that contribute most to the volatility. The sector continues to benefit from a favorable trend in reserves compared to previous years, but this accounted for about 4.5% of the combined ratios of 2017, compared to 7 % to 8 % on average over the previous eight years.
As the recent changes of rates in reinsurance have been more modest than those observed in the early 2000s, the release of reserves could decline somewhat in the coming years, believes S&P. ” In our opinion, the reserves for natural disasters of 2017 seem to be quite sufficient, although there are a few minor exceptions, such as the losses caused by the hurricane Irma. The relatively low inflation observed in previous years could also increase, leading to risk of additional reserve. “
The cyber risks also at the heart of discussions
The cyber risks have largely been mentioned during the discussions in Monte-Carlo, as an important market opportunity. According to Munich Re, the global insurance industry has purchased approximately 3 to 4 billion in 2017 cyberrisque. It is estimated that this figure could double by 2020.
S&P believes that the sector has a great potential, as long as the products continue to be developed. The firm cautions, however, that the losses related to cyber attacks are often very expensive.