Data and Analysis on the performance of 18 U.S. reinsurers in 2016, by the Reinsurance Association of America (RAA), reveals that profit margins declined further in the year as combined ratios surpassed or weakened closer to 100%, despite writing more business.
The analysis explores the performance of a group of 18 U.S. property/casualty reinsurers that are based in the U.S., and also includes subsidiaries of global reinsurance firms, and shows that by the end of 2016 the group’s combined ratio had weakened to 95.2%, compared with 94.9% for the nine months ending Q3, and 92.6% from the end of 2015.
The group recorded a net underwriting gain of $1.64 billion in the twelve months ending December 31st, 2016, so an increase on the $1.04 billion recorded at the end of Q3, but roughly 36.4% lower than the $2.58 billion recorded at the end of 2015.
The net income reported by the group of reinsurers tells a similar, albeit less dramatic story, as the $10.6 billion recorded at the end of 2016 is higher than the $6.3 billion reported at the end of Q3 2016, but down by $200 million, or 1.9% on the $10.8 billion recorded for the full-year 2015.
The global reinsurance market remains highly competitive and despite an uptick in catastrophe losses in 2016, with reports highlighting the largest volume of losses for the last four years, an abundance of capacity from traditional and alternative sources continues to drive a supply/demand imbalance and subsequent price reductions.
Despite the decline in underwriting profit the group of 18 U.S. reinsurance players did write more business last year than in 2015, with analysis from the RAA showing that Gross Premiums Written (GPW) in 2016 amounted to roughly $62.2 billion, so growth from the $60.6 billion recorded in 2015, and the $49.2 billion reported at the end of the third-quarter, 2016.
Net Premiums Written (NPW) in 2016 totalled $41.1 billion in 2016, compared with $38.9 billion in the previous year.
Absent a return to a more normalised catastrophe loss experience in 2016 reinsurers were already expected to remain under significant pressure, but the rise in claims experience felt across the marketplace further underlines the need for discipline and efficiency.
A need to reduce costs to improve efficiency as returns on both the underwriting and investment side of firms’ balance sheets become increasingly challenging to find, was evident in 2016 as the group of reinsurers ended the year with a lower expense ratio, of 25.9%.
This is compared with an expense ratio of 26.2% in 2015, according to the RAA.
Investment income for the group of reinsurers declined in 2016 when compared with the previous year, falling from roughly $8.5 billion in 2015, to approximately $8.4 billion last year.
The group’s loss ratio weakened in 2016 when compared with the previous year, ending the year at 69.3%, so 3% higher than the 66.3% reported at the end of 2015, but a slight improvement on the 69.8% recorded at the end of Q3, 2016.
Rates in the global reinsurance industry fell further at the January 1st, 2017 renewal season, albeit it at a moderated pace than previously, but with the market still awash with capacity and catastrophe losses in 2017, so far, accelerating in some regions, U.S. reinsurers will likely continue to operate in a testing operating environment.
