Persistent pressures and intense competition in the global reinsurance industry led to a reduction in net written premiums (NWP) by 0.5% in Q2 2017, when compared with the previous year, and for the cohort of reinsurers tracked by international ratings agency, Moody’s.
According to the Moody’s second-quarter 2017 global reinsurance report, intense competition from both traditional and alternative reinsurance capital providers resulted in a decline in NWP during the quarter, as players looked for less competitive and potentially more profitable lines of business.
For the cohort of reinsurance companies discussed by Moody’s, and excluding Warren Buffett’s Berkshire Hathaway, NWP during the second-quarter of 2017 fell by 0.5% to roughly $20.25 billion, compared with $20.36 billion a year earlier.
During the same period, gross written premiums (GWP) increased from roughly $49.6 billion to $50.9 billion, representing growth of around 2.7%, which is roughly in line with the 2.8% growth recorded in Q2 2016.
The growth in GWP, says Moody’s, is a result of reinsurers offsetting the reduction in P&C reinsurance pricing by expanding their presence in primary specialty business lines, or by entering completely new lines of business in search of greater yield, such as mortgage re/insurance.
At the same time, Moody’s attributes part of the decline in NWP, which was evident at reinsurer Swiss Re and Munich Re during the second-quarter of 2017 but partly offset by growth at Hannover Re, SCOR, General Re, and Everest, to lower premiums.
“The overall reduction partly reflects lower premium rates, particularly in the commoditised property catastrophe reinsurance business, which is most exposed to competition from alternative capital. It is also driven by reinsurers’ underwriting discipline, which has led many, including Swiss Re and Munich Re, to cut back exposures in lines where targeted returns were not being met,” said Moody’s.
There’s been evidence for some time now of reinsurance players of all shapes and sizes pulling back on the most competitive parts of the marketplace, with much of this occurring in the property catastrophe space, which remains the key focus of alternative reinsurance capital.
And with rates across the reinsurance sector expected to fall for the remainder of 2017 and into 2018, absent a truly market turning event or perhaps a few more modest catastrophe events as seen with hurricane Harvey, it’s likely firms’ will continue to pull-back and look for opportunities elsewhere, likely in the primary space.
While it’s positive to see companies both small and large showing underwriting discipline, which is vital in the current market landscape, in order to remain relevant in a rapidly changing industry companies will need to innovate and increase efficiency across the value chain, or risk being left behind as the new reinsurance world order takes shape.
