SOUNDBITES
Reinsurance Systemic Importance: Natural Catastrophes Are Unlikely To Trigger Systemic Failures In Insurance By Miroslav Petkov and Rob Jones
• Based on our analysis of extreme loss scenarios, we don’t consider reinsurers’ catastrophe risk exposure to be a source of systemic risk for the insurance industry.
• The distribution of risk and high levels of capital adequacy in the sector lessen the risk of insolvency in the event of extreme losses.
• Use of collateralized retrocession protection further reduces systemic risk.
Regulatory Update: Insurers May Not Pose A Systemic Risk, So Do The G-SII Designation’s Costs Outweigh Its Benefits?
By Rob C Jones, Connie Wong, Volker Kudszus, Tracy Dolin, Dennis P Sugrue, Ron A Joas and Matthew A Walker
• The merits of the G-SII designation for global financial stability are not clear, in our view, and may not outweigh its costs for insurers and their regulators.
• Some of the consequences of being a G-SII are known and some are emerging; some of the proposals are worthy, in our view, but some may be unnecessary.
• We view the global capital standard, a requirement for the G-SII regime, as a positive development for the industry as a whole in terms of leveling the competitive playing field, but we believe the timetable is aggressive.
• The G-SII designation has had no direct rating impact on insurers thus far, but we see the potential for both positive and negative longer-term rating implications for G-SIIs.
Life Reinsurance Sector Review: Global Life Reinsurers See An End To Major Consolidation And Signs Of Stabilizing Growth By Ferris Joanis and Johannes Bender
• Global life reinsurers continue to struggle with slower growth, but a leveling-off in mortality cession rates indicates that the market may be stabilizing, while emerging markets offer longer-term opportunities.
• Most life reinsurers have maintained strong profitability despite a competitive market and declines in cession rates.
• The largest five reinsurers should largely show greater resilience to the current tough global reinsurance market conditions, due in part to their diversification and a relatively stable earnings stream from their life reinsurance businesses.
Cat Exposure: Global Reinsurers’ Appetite For Catastrophe Risk Remains Largely In Check By Charles-Marie Delpuech and Jason S Porter
• Reinsurers’ appetite for catastrophe risk have largely remained unaffected by softening prices, despite a modest uptick in exposure to smaller catastrophes.
• Price deterioration and higher exposure to smaller catastrophes could weaken profit margins and increase earnings volatility, which would more greatly affect players with concentrations in more competitive catastrophe markets than more diversified players.
• The impact of a one-in-250 year annual loss to the sector’s shareholders’ equity remains largely aligned with what we have observed in the last couple of years at an average of 36%.
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Global Reinsurance Highlights 2014
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