RATING AND PERFORMANCE


Chart 3: Combined Ratio Of Global Reinsurers (2009–2013) Sector Average


Sector 75th


160 (%)


20 40 60 80 100 120 140


Strategic Defenses For The Competitive Position


Sector 25th Average Combined Ratio


Many of the reinsurers that operate mainly from London (known as London market players) and have well-diversified business portfolios have slightly reduced their exposure to property catastrophe business, where premium rates have declined significantly. To deploy some of their excess capital, they have increased their focus on specialty lines.


© Standard & Poor's 2014. Chart 4: Capital Adequacy


W=Weak, LTA=Less Than Adequate, LA=Lower Adequate, UA=Upper Adequate, MS=Moderately Strong, S=Strong, VS=Very Strong, ES=Extremely Strong


ES VS


S


MS UA LA


LTA W


Capital adequacy Peer average


Another means by which smaller players have been supporting their competitive positions has been through the use of consortia. Larger primary insurers increasingly make their reinsurance purchasing decisions at the group level, an approach that tends to favor large “top tier” reinsurers that can meet clients’ demands by providing a number of products. In response, smaller players, especially those in the London market, have combined forces, giving them the ability to offer clients large blocks of capacity.


So long as the current pressure on premium rates continues, we expect merger and acquisition activity to be high on some companies’ agendas, in particular fueled by limited growth opportunities, and the need for economies of scale.


Capital Strength Could Be At Risk If Earnings Deteriorate


Data as at July 21, 2014 © Standard & Poor's 2014.


Chart 5: Financial Risk Profile (No. of companies)


0 1 2 3 4 5 6 7 8 9


Extremely weak


Very weak


Data as at July 21, 2014 © Standard & Poor's 2014.


Weak Less than adequate


Lower Upper adequate adequate


Moderately strong


Strong


Very strong


Extremely strong


For the past couple of years, the sector has posted strong operating results, partly because catastrophe losses have remained low and reinsurers have also released reserves set aside in previous years. However, reserve releases are likely to diminish in 2014–2016, which could be problematic for those that have been heavily dependent on prior-year releases. At the same time, we expect softening pricing to cause the sector’s operating performance to deteriorate in 2014 and 2015, compared with recent years. This could impair the industry’s ability to generate capital organically when needed. Low catastrophe losses have significantly enhanced the reinsurance sector’s underwriting results, and its earnings. Once again, the sector demonstrated this by reporting very strong underwriting results: The 23 reinsurers’ average combined ratio was 84.8% for 2013, outperforming the five-year average of 90.7% (see Chart 3). (A combined ratio of greater than 100% signifies an underwriting loss.) Releasing reserves held against prior underwriting


64 Global Reinsurance Highlights 2014


Allied


Alterra


Amlin Arch Aspen


Catlin Group Endurance EverestRe


AXIS HannoverRe Hiscox Lancashire Lloyd’s Maiden


MontpelierRe MunichRe


PartnerRe Allied Alterra Amlin Arch Aspen AXIS Endurance Catlin Everest Hannover Hiscox Lancashire Lloyds Montpelier Maiden Munich PartnerRe RenaissanceRe Platinum SCOR Transatlantic Swiss Validus RenaissanceRe Platinum SCOR Transatlantic SwissRe Validus


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