Professional Documents
Culture Documents
Global Reinsurers
Global Reinsurers
Global Reinsurance
Cycle
management
is shrinking cat
portfolios.
Analytical Contacts
Editorial Management
Brendan Noonan
The cultural barriers that have been cited in the past as obstacles to consolidation may
become less of a factor if companies shrink to where they can no longer compete in this
increasingly global market. This past year, Validus Re acquired Western World in the
United States. In November, Renaissance Re announced that it would acquire Platinum
Underwriters, and in mid-December there was speculation that Montpelier Res board was
considering putting the company up for sale. In January 2015 XL entered a definite merger
agreement to acquire Catlin. All of these are examples of the need for greater global scale
and diversified product lines and distribution, replacing the days of specialty focused
reinsurance companies. Companies with well-diversified businesses and a global reach
likely will only get larger as smaller players put themselves up for sale or seek strategic
partnerships to survive.
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Briefing
Global Reinsurance
securities (ILS). January renewal pricing for property contracts was once again down 10%15% for both U.S. and European risk. U.S. casualty was up 5% to down 20%, depending on loss
experience, and in Europe casualty rates were up 5% to down 10%, also depending on loss
experience. Aerospace was flat to down 7.5%, and global trade credit was down 10%-20%.
Concessions in contract terms and conditions, including greater ceding commissions and
multiyear contracts, continued for the Jan. 1, 2015 renewal season.
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
USD Millions
Exhibit 1
Global Reinsurance
Cat Bond Issues by Year
100
92.7
30.0
86.8
87.4
29.8
30.4
30.9
31.5
29.7 Given the lack of major cat
losses 31.7
and ongoing favorable reserve development, most reinsurers
60
Source:
A.M. Best
data & research,
Artemis,
company
reports
continue
to deliver
solid
combined
40
93.2
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
80
85.8
0
77.3
ratios.
63.4
61.8
56.12
55.7
55.3
Exhibit
20
U.S. & Bermuda
0
Reinsurance
Combined
Ratio
Trend
2009
2010
2011
2012
2013 2014 Q3
62.8
5-Yr Avg
Loss Ratio
Expense Ratio
Favorable Loss Reserve
YTDDevelopment
120 A.M. Best data & research, Imetrix, Bloomberg, company reports
Source:
107.3
93.1
100
92.7
93.2
87.4
30.0
85.8
86.8
Exhibit 3
80
29.8
30.4
30.9
U.S. &29.7
Bermuda
Reinsurance
Return31.7
on Equity
31.5
18
60
16.2
Return on Equity
5-Yr Avg
16
40
77.3
14
63.4
62.8
61.8
12.4
56.1
55.7
55.3
11.9
12
20
10.9
10.6
10
0
8 2009
2010
2011
2012
2013 2014 Q3 5-Yr Avg
YTD
6
Source: A.M. Best data & research, Imetrix, Bloomberg, company reports
4
2
1.0
Exhibit
3
0
2010
2011
2012
2013
2014 Q3
U.S. &2009
Bermuda
Reinsurance
Return
on Equity
YTD
Source:
18 A.M. Best data & research, Imetrix, Bloomberg, company reports
30.0
85.8
80
Briefing
29.7
29.8
30.9
86.8
87.4
31.5
31.7
60
30.4
Global Reinsurance
40
56.1
61.8
77.3
63.4
62.8
55.7
55.3
Exhibit 3
U.S. & Bermuda Reinsurance Return on Equity
18
16
16.2
14
Return on Equity
5-Yr Avg
12.4
11.9
12
%
10.9
10.6
10
8
6
4
2
0
1.0
2009
2010
2011
2012
2013
2014 Q3
YTD
Source: A.M. Best data & research, Imetrix, Bloomberg, company reports
As premiums continue to decline, investment returns remain low, reserve releases taper, and
Exhibit
4
commissions increase, it is expected to be increasingly
challenging
to deliver double-digit
Global
Reinsurance
buybacks also are
ROEs. That said, given the strong capital positions of many companies, share
Estimated
Total
Dedicated
Capacity
expected to remain a strategy for companies looking to improve returns for shareholders,
and
450
that will slightly offset some of the challenges companies
face on the income side.
USD Billions
400
350 if capital continues to enter the market
Returns are expected to become even more challenging
300
at such a high rate, reserve releases decline, and pricing continues to soften in the double
250
digits. The scenario for lower ROEs and an uptick in 200
combined ratios as commission expenses
increase further and premiums continue to decline 150
is possible in 2015, particularly if pricing
declines spill over the primary side of the business at100
a faster rate throughout the year.
50
0
Overall, this remains a challenging market, but the reinsurance
composite is expected
2012
2013 to post
solid results for 2014, which was aided by the lack *ofEstimate
large by
catGuy
losses,
ongoing share repurchases
Carpenter
Source: A.M. Best data & research, Guy Carpenter
and favorable reserve releases. Conditions will remain competitive and challenging, as primary
companies are expected to continue retaining more business and/or seeking higher ceding
commissions or multiyear contracts for sharing their profitable business. Margin compression
also will likely persist as third-party capital seeks a larger piece of the pie. As a result, A.M. Best is
forecasting underwriting performance for the United States and Bermuda to produce an average
combined ratio of 94.8 and an average ROE of 8.2% for 2015, representing a stubbornly difficult
market environment and a normal level of catastrophe activity.
2014E*
2009
2010
2011
2012
2013
2014 Q3
YTD
Source: A.M. Best data & research, Imetrix, Bloomberg, company reports
Briefing
Global Reinsurance
USD Billions
Exhibit 4
Global Reinsurance
Estimated Total Dedicated Capacity
450
400
350
300
250
200
150
100
50
0
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Washington, DC
Mexico City, Mexico
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Singapore
London, UK
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+1 (908) 439-2200
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SR-2015-B-591