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SOUNDBITES


Sector Trends: Innovation And Adaptation Are Key to Relevance By Dennis Sugrue, Taoufik Gharib and Mark Coleman


• Lower demand has been leading to greater competition in reinsurance markets, resulting in softer pricing—we believe more than half the global reinsurers we rate are more susceptible to these trends, despite currently strong balance sheets.


• Short-term, opportunistic strategies should not be relied upon for long-term success. • The industry is under threat over the long term; in order to reinforce relevance reinsurers will have to adapt to changing conditions by expanding into new markets, developing new products, and supporting global growth.


• Those reinsurers we rate that don’t adapt to these changing conditions are at greater risk of weakening credit quality.


Pricing Analysis: Pricing Slides As Reinsurers Strive For Competitive Footing By Jason S Porter, Dennis P Sugrue and Taoufik Gharib


• Rates are falling almost universally across the reinsurance market. This could hurt reinsurers’ competitive positions and may encourage looser underwriting discipline and risk controls.


• Reinsurers may find reprieve from the rate declines by shifting capacity to new lines or regions, or creating alternative capital platforms. Expansion to new products or emerging markets comes with additional risks.


• Loosening of reinsurance contracts’ terms and conditions may erode the economics in ways that risk-adjusted rates don’t capture, thus increasing reinsurers’ risk.


• Companies that fail to maintain their profitability and competitive positions or compromise their risk management through this trough in the market cycle could be at risk of downgrades.


Climate Change: Climate Change Could Sting Reinsurers That Underestimate Its Impact


By Miroslav Petkov, Mark Coleman and Dennis Sugrue


• The possibility that climate change is already affecting the frequency and severity of extreme events cannot be ruled out, even if it cannot be quantified exactly.


• We created a scenario based on the past 10 years’ loss experience to test the potential impact of climate change; the results indicate that, under this scenario, reinsurers might be underestimating their exposure to catastrophe losses by an average of about 50%.


• Under this scenario, key ratings metrics which we use to assess reinsurers’ capital adequacy and catastrophe exposure are materially affected.


Disaster Resilience: Working With Governments To Increase Disaster Resilience Can Open New Doors For Reinsurers By Dennis Sugrue and Miroslav Petkov


• Growing middle class wealth in many developing economies is outpacing insurance penetration, increasing the level of uninsured losses a country must absorb after a disaster.


• The higher the level of uninsured losses, the greater the financial shock and the potential for an economy’s growth to be derailed.


• By building disaster resilience, before an event, governments can benefit from their ability to devise solutions that will help protect economic stability and provide timely relief, recovery, and reconstruction funding.


• We believe that reinsurers can play a role in protecting governments and their citizens from the financial shocks associated with natural catastrophes, which should reinforce the relevance of the insurance market.


8 Global Reinsurance Highlights 2014


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