S&P Global has reported that the rankings of the largest global reinsurers could be subject to volatility, as Warren Buffett’s Berkshire Hathaway was propelled into the top 3 last year following the $10.2 billion premium it collected from its adverse development deal with AIG.
Further disruption could be caused by the recent deal between AXA and XL, which would have ranked as the seventh-largest global reinsurer in 2017 had it been treated as a combined entity, according to S&P Global Market Intelligence.
Berkshire jumped three places in the rankings last year, challenging the dominance of the ‘big four’ European reinsurers (Munich Re, Swiss Re, Hannover Re, and SCOR) for the first time since 2008.
However, Berkshire’s new position is likely to be short-lived, as Buffett admitted in his 2017 annual letter to shareholders that the AIG deal, which saw Berkshire reinsure $20 billion of old long-tail liabilities, was one that the company “won’t come close to repeating” and that “premium volume will therefore fall somewhat in 2018”.
Indeed, S&P expects the dominance of the world’s biggest reinsurers to continue once the rankings adjust to the new entrants, as smaller, less diversified companies simply cannot offer the same level of coverage as their larger peers.
Daniel Bischof, Analyst at Baader Helvea, explained: “If you look at the trends in the last decade or so, the big four clearly gained market share, big time, over that period. I think this will go on as primary insurers want to get a broad product offer, including life and nonlife, and they are looking for global big balance sheets with a strong, superior rating. That is what all of the four can offer.”
Larger reinsurers also have a competitive advantage in that they can offer highly specialised, structured deals for large primary insurers, and can allocate considerable resources for research and investment.
Speaking at an event on May 23, Moody’s Senior Credit Officer Brandan Holmes said: “The largest players have the ability to do structured transactions but also to invest in innovation required to build the next set of non-commoditized profitable products. As far as we can see, they are pretty secure in that [leading] position for now.”
Furthermore, larger reinsurers should benefit from growth at the 2018 price renewals, despite increases being lower than anticipated for many companies following 2017’s costly catastrophe events.
Bischof continued: “If you look at what ultimately happened at the January renewals and I think also most cases at the April renewals, there was quite decent volume growth. … I would still expect [the June and July reinsurance renewals] should show some additional rate increases and then probably after then it will flatten out, but it is difficult to project.”