The global P/C reinsurance sector’s operating performance has been significantly exposed to volatility from natural catastrophe losses. Indeed, Munich Re, Swiss Re, Hannover Re, PartnerRe, and Everest Re, which are among the top 10 reinsurers in the world, saw their P/C reinsurance combined ratio affected by an average of 11.8 percentage points during the past five years (2009–2013) due to natural catastrophe losses. Furthermore, in 2011 the impact to the combined ratio was more substantial and jumped to 30.4 percentage points on average for these five reinsurers. As a result, many reinsurers have factored in a catastrophe load (average annual loss) in their annual budgets to provide a cushion against this volatility.


We believe that the sector is also exposed to unpredictable settlements in the casualty lines of business. The industry has experienced volatility from adverse claims settlements in the past. Although there has not been material volatility on this front in recent years, the threat remains. Historically, volatility in results has arisen from unpredictable claims settlements for reinsurers, particularly in the U.S. regarding asbestos and environmental claims, workers’ compensation, professional liability, and medical malpractice.


Barriers to entry (neutral)


This assessment incorporates two main factors-regulatory and operational barriers—both of which we view as moderate. Given the global scope of this sector, we consider various regulatory regimes when assessing regulatory barriers to entry. Most global reinsurers are domiciled in major developed markets such as Germany, the U.S., the U.K., Switzerland, and Bermuda.


Our view is also affected by the relatively moderate operational barriers to entry that materially expose P/C reinsurers to competition from new reinsurers. It’s more challenging for new entrants to establish a defendable competitive position in the long term, and few have been successful. We recognize that it is relatively easy for a start-up P/C reinsurer or third-party capital to enter the market to write property catastrophe business in the wake of a capital event or seeking higher returns. However, this new entity needs to have a credible management team with a solid track record and a robust business plan. We believe that accessing the noncatastrophe lines


Global Reinsurance Highlights 2014


“Many global reinsurers have incorporated these emerging economies in Latin America, the Middle East, Africa, and Asia-Pacific into their growth and diversification strategies.”


of business in the U.S., and especially in Europe, requires a stronger business model, established relationships, financial security, and a track record that takes time to develop. Cedents want to be sure that their reinsurers will be around to pay claims, and the recent failure of many “Class of 2005” reinsurers to establish themselves as viable long- term players is an example of the difficulty reinsurers have in establishing that longevity.


Market growth prospect (neutral) Overall, gross premiums written for the sector have grown by 5% on average during the past five years. We don’t expect this growth trend to continue in 2014 and 2015, as we expect premiums to be broadly flat during this period in response to the pricing cycle. During the past few years, as developed economies’ growth slowed, emerging markets’ economies performed comparatively well.


Our economic forecasts continue to project that growth in emerging markets will outpace growth in developed markets, although at a lower rate (see Table 4). Insurance penetration in emerging markets is generally low, but growing. The compounded effects of economic growth and increasing insurance penetration provide meaningful opportunities for growth. In response, many global reinsurers have incorporated these emerging economies in


Latin America, the Middle East, Africa, and Asia-Pacific into their growth and diversification strategies.


Institutional framework (neutral) Our view of institutional framework is based on our assessment of regulatory framework and regulatory track record in the markets where most global P/C reinsurers are domiciled—such as the U.S., U.K., France, Germany, Switzerland, and Bermuda— which we view in aggregate as intermediate. In addition, the governance standards and transparency of these domiciles present no deficiencies. Accounting standards and disclosure practices, including whether a reinsurer has adopted U.S. generally accepted accounting principles or international financial reporting standards, are generally of high quality and reliable.


Taoufik Gharib


New York, (1) 212-438-7253 taoufik.gharib@standardandpoors.com


Dennis P Sugrue


London, (44) 20-7176-7056 dennis.sugrue@standardandpoors.com


Olga Ryabaya


New York, (1) 212-438-3843 olga.ryabaya@standardandpoors.com


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