Big insurers eyeing reinsurance acquisitions

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  • Low impact: this graph illustrates year-over-year rate movement in property-catastrophe reinsurance, with no notable spike in the aftermath of last year's hefty hurricane-related losses (Source: Willis Re)

    Low impact: this graph illustrates year-over-year rate movement in property-catastrophe reinsurance, with no notable spike in the aftermath of last year's hefty hurricane-related losses (Source: Willis Re)


Large insurers are increasingly entering the market to buy reinsurance companies, according to risk adviser Willis Re.

In its latest 1st View report, Willis Re said it had seen “largely flat” renewal pricing on loss-free programmes, but some modest growth in demand for reinsurance.

James Kent, chief executive officer of Willis Re, said there were significant changes going on in the nature of the ongoing consolidation in the industry.

“The most dramatic shift in the last few months has been the dynamic change in reinsurance mergers and acquisitions with large primary carriers re-entering the reinsurance market, having largely abandoned the sector in the 1990s and early 2000s,” Mr Kent said.

“Many major non-life primary companies with large personal line and small medium enterprises portfolios are facing the greatest disruption from new distribution models. Similarly, large primary companies with life portfolios are facing profitability challenges and an inability to differentiate their results from general investment markets.

“Against this background, buying large transparent, well-managed reinsurance companies with synergies in some areas of their existing portfolio is proving attractive.”

When big insurers exited the reinsurance market at the turn of the century, it was because of poor exposure management that led to earnings volatility and sometimes large underwriting losses that resulted in capital strains, Mr Kent said.

“The assumption now is that access to diversified sources of risk, allied with greater confidence that historic technical issues are now better managed through advanced risk quantification techniques, is sufficiently enticing for large primary companies looking for growth,” he added.

Mr Kent said: “The ‘Big Balance Sheet’ reinsurer model is being reinvigorated and the real test for management will be their portfolio management ability and the agile use of their large balance sheets.”

While rates had been largely flat, reinsurers could take some encouragement from an increase in demand from a number of buyers that had boosted reinsurance premium volumes.

“Furthermore, insurance companies, particularly within the C-suite, continue to assess the impact of reinsurance buying to support earnings and capital management, with the value of reinsurance seen as higher than it has been in recent years,” Mr Kent said.

“Away from the headline property catastrophe renewals, many other classes managed uncontentious renewals and despite limited movement in original rating levels, underlying exposure growth has fed through into modest increased reinsurance premium volumes for reinsurers.”

Willis Re said there had been a “rapid reload” of insurance-linked securities funds after initially overstated losses from last year’s hurricanes Harvey, Irma and Maria, which in turn had led to a continued oversupply of capital that was helping to restrain rate increases.

There was apparently no impact on investor appetite, the report added.

“Many of the larger ILS funds are building up their own analytical skills and developing their ‘own view of risk’,” Mr Kent said. “This is helping them manage their investors’ expectations with regard to less obvious exposures.”

Full-year results from reinsurers had revealed an “increasingly worrying trend” — the deterioration of virtually all non-natural catastrophe lines and a limited reserve release available from past years.

“While long predicted, the impact of this deterioration is now compelling virtually all managers to take decisive action,” Mr Kent said.

“This is evident in many reinsurers and specialty carriers stepping up their efforts to reshape their portfolios, exiting unprofitable lines of business and implementing cost-saving programmes.”

The outlook was not completely grim for reinsurers, however.

Mr Kent said: “Any hopes reinsurers held for meaningful real rate increases to help offset difficult 2017 results have been dashed. Now, a slower upward trend across different lines of business is what observers are stating as the more likely trajectory, particularly if loss ratios on the underlying business continue to deteriorate.”

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Published Apr 4, 2018 at 8:00 am (Updated Apr 3, 2018 at 7:24 pm)

Big insurers eyeing reinsurance acquisitions

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