market, particularly in underpenetrated economies that will be the engines of global growth over the coming decades. The reinsurance market is currently difficult for all players. We expect pricing and profitability will continue to deteriorate for the next 12 to 18 months, and we don’t anticipate any increase in investment returns that could provide a respite.
Roughly half of the global reinsurers that we rate are more vulnerable to the current competitive pressures because of their scale and business mix. Some of these companies will find it difficult to defend their competitive positions in the market and may struggle to generate earnings that can meet their cost of capital without taking excessive risks.
Successful players in the current market, which we expect to be able to weather the current conditions, have the capital strength to withstand increasing risk exposures, can exercise disciplined underwriting to maintain profitability, and can retain or expand their presence with key clients by offering capacity, expertise, and a range of products that can support cedents’ changed buying patterns. These companies are well-
“We expect pricing and profitability will continue to deteriorate for the next 12 to 18 months.”
placed to withstand this soft cycle. That said, in our view, the industry will look different when the dust settles. We anticipate seeing fewer, larger global reinsurers that will use capacity from the capital markets to provide the level of syndication and diversification that the insurance market requires. Over the long term, reinsurers will have to reinvent their business models to remain relevant as the economy changes, rather than just manage the downside and react to short-term opportunistic trends. The entire sector can’t be a following market, and those that choose to follow are likely to find that someone else will lead.
Dennis P Sugrue
London, (44) 20-7176-7056
dennis.sugrue@
standardandpoors.com
Taoufik Gharib
New York, (1) 212-438-7253
taoufik.gharib@
standardandpoors.com
Mark Coleman
London, (44) 20-7176-7006
mark.coleman@
standardandpoors.com
Beijing (China) – MAPFRE Rep. Of. Bogota (Colombia) Brussels (Belgium) Buenos Aires (Argentina) Caracas (Venezuela) Lisbon (Portugal) London (United Kingdom) Madrid (Spain) Manila (Philippines) Mexico D.F. (Mexico) Milan (Italy) Munich (Germany) New Jersey (USA) Paris (France) Santiago de Chile (Chile) São Paulo (Brazil) Toronto (Canada)
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www.mapfrere.com
Global Reinsurance Highlights 2014
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