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The reinsurance under the magnifying glass : dangers on the horizon


Hubert Roy

9 September 2019 11:30

Photo : Freepik

The devastation caused by hurricane Dorian will be at the heart of discussions of the reinsurers gathered at the Rendez-vous de septembre in Monte-Carlo.

The stakes, however, fail not for this industry, noted by the rating agencies S&P Global Ratings and Moody’s. These have multiplied the reports to this effect in recent weeks.

A source of capital to secure

S&P has started the ball rolling with a report noting that the capital does not lack in reinsurance. However, the amounts invested by third parties, such as pension plans, have invested heavily funds in reinsurance over the past few years, remain critical to the sector.

Citing Aon Securities, S&P indicates that the capital available for reinsurers amounted to 605 billion dollars (G$), of which 93 G$ from players alternative. This figure has doubled in seven years and has quadrupled in 13 years.

Focus on the good things

Another report by S&P mentions that reinsurers will need to be more active in the management of their capital. They will need to decide to get out of markets that are not part of their main activities (core business) and concentrate their forces in the underwriting and management of risks in the activities in which they are experts.

“If they can execute this strategy in the right way, it can be profitable for both the reinsurers and the companies that cede risk. Looking at everything carefully, they can reduce the volatility of their portfolio while reducing the regulatory requirements that are requested, ” explains the analyst Saurabh Khasnis.

Relevance to prove

As the title of a third report, 2020 Reinsurance Sector Outlook, Secular Headwinds Continue Despite Positive Pricing Momentum, the reinsurers should expect that 2020 is not all rest. They have recorded heavy losses in 2017 and 2018 due to the many disasters. Even if the pricing of reinsurance treaties is on the rise, the market faces a standardization. The innovation was soon also to enter into the management philosophy of the reinsurers, ” said the analyst Taoufik Gharib.

The questions are many. The reinsurers are they complacent in their ways ? Do they respond to the vagaries of the pricing posed by disasters ? He asked that the reinsurers had autocritiquent more.

Mr. Taoufik said to believe that the proceeds of reinsurance is in the process of standardizing, especially on the side of disaster. The market remains highly competitive, which delays the need to innovate. Mr. Taoufik specifies, however, that the questioning about the relevance of the reinsurance must begin immediately.

Start-up or not ?

Fourth report : reinsurers entering the market are they necessarily start-ups ? No, says S&P. there are a lot of new players that start with experienced leaders.

A start-up company is a company whose founders have little experience in the field of insurance, have been keen to remind analysts of S&P, then they had these new rating criteria.

The profits do not cover the losses…

At Moody’s, there is concern that the profits reaped by the reinsurers do not cover the claims they pay. Their ability to absorb future losses is therefore reduced, say analysts.

Added to this is climate change. Reinsurers are more exposed than others, given their role during natural disasters. Analysts at Moody’s warn that the reinsurers pay special attention to bushfires, as their frequency and their severity increases.

… that will depend on hurricane

The transition of Dorian’s bad news if we extrapolate the findings of another report by Moody ” s To its to analysts, the profitability of the sector in 2020 will be closely linked to the hurricane season. The reinsurers will be able to adjust their pricing mid-year, but up to what point ? It should not be forgotten that in the region of the pacific, the typhoon Jobi caused heavy damage. If hurricanes increase, the firm’s rating anticipates that it will have to downgrade the rating of financial strength of the reinsurers that it follows.

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