Current industry trends favour large, top-tier reinsurance companies, who remain well placed despite a challenging pricing environment, according to a recent report by investment bank Berenberg.
Berenberg assessed the condition of top-tier European reinsurers such as Munich Re, SCOR, Hannover Re, and Swiss Re, concluding that their businesses remained profitable and well-diversified, with robust balance sheets.
It also observed that current buying patterns appeared to be supporting these top-tier companies, with cedants either reducing reinsurance panels or looking for highly tailored agreements across multiple lines or geographies.
These trends are likely to support volume growth and potential industry consolidation for large European reinsurers even in a difficult pricing environment.
In contrast, mid-tier reinsurers are set to face significant challenges in the absence of a hardening market, with underlying profitability generally remaining poor, balance sheet leverage increasing, and rating agency downgrades underway.
Berenberg predicted that the pace of consolidation will increase as mid-tier reinsurers are squeezed, potentially leading to top-line growth for larger European reinsurers, despite limited pricing tailwinds.
Overall, the analysis considered the current property and casualty (P&C) reinsurance market to be highly challenging, with mid-tier players operating in highly commoditised lines of business likely to suffer most.
However, Berenberg believes that those companies with diversified business models, exposure to many lines of business, high-quality underwriting capabilities, global scale, and strong balance sheets will eventually emerge as winners in the market.