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French cedents reinsurance purchasing growth outpacing GPW: A.M. Best

27th March 2017 - Author: Luke Gallin

The reinsurance buying habits of the 20 largest cedents in France shows that purchasing has increased at a faster rate than gross premiums written (GPW), according to analysis from rating agency A.M. Best.

According to A.M. Best the largest French cedents have “displayed stability in their purchasing of reinsurance,” driven largely by the four largest market participants, being SCOR, AXA, Société de Groupe d’Assurance Mutuelles Covéa, and Groupama.

Although, the rating agency has said that the trend was somewhat offset by a slight reduction in reinsurance ceded by the other 16 firms, which reflects particular characteristics of their business models, with some being mutuals or medical insurance specialists, for example.

The analysis from A.M. Best is based on the 20 largest France-based cedents’ full-year 2015 and 2014 data, which reveals that in 2015 there was a 5.1% increase in reinsurance ceded, as net premiums written (NPW) grew in line with GPW.

In France, “Demand for reinsurance is moderately outpacing growth in GPW,” says A.M. Best, which reflects a similar trend seen in Continental Europe. A.M. Best reported recently that European cedents were using more reinsurance in light of the soft market conditions and Solvency II requirements.

According to the rating agency the reinsurance or retrocession buying habits of French cedents is reflective of the distinct nature of industry players, and, on average, a more conservative risk appetite.

A.M. Best highlights some disparity with the buying habits of the four larger French players when compared with the remaining 16 cedents, stating that the big four generally have higher retention ratios with a fairly small reinsurance component.

Whereas the smaller companies tend to have a strong reliance on reinsurance owing to the nature of their business models, with many being mutuals, or those offering pensions and health business, says A.M. Best.

For the larger companies in France A.M. Best predicts further challenges ahead as the pressure on rates in the global reinsurance industry is unsustainable in the long-term and companies increasingly struggle to meet their cost-of-capital.

“However, these bigger entities are very well capitalised and diversified and should manage changes to reinsurance policies without significant impact to their balance sheets,” says A.M. Best.

For the smaller firms; “Reinsurance purchasing will reflect the nature of risks underwritten, and the primary focus of the insurer – be it a business model more focused on distribution and client relationships as opposed to being mainly a risk carrier.

“Any significant change to reinsurance purchasing and risk appetite will depend on product offerings, as entering new lines of business enables top line growth but typically requires more reinsurance support to provide capital, as well as technical assistance,” says A.M. Best.

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