Conditions in the global reinsurance market are set to remain “competitive and challenging” in a situation described as “tense” by the International Association of Insurance Supervisors (IAIS).
The IAIS notes that competition is a factor across all of non-life re/insurance, with the market experiencing soft pricing conditions, but says that this is particularly the case in the reinsurance industry where competition is “fierce.”
“The (re)insurance sector operates in an increasingly difficult macroeconomic and financial environment, characterised by weak global demand, low inflation rates, very low and partially negative interest rates, and bursts of financial market volatility,” the IAIS’ 2016 Global Insurance Market Report (GIMAR) explains, saying that “This environment is challenging long-established business models of various insurance companies.”
Premiums in non-life re/insurance are challenged by competition, while investment yields haven’t improved. Reinsurers face lower demand from cedents as well, while at the same time reserve release benefits look likely to diminish.
Growth and a lack of new opportunities has exacerbated market conditions in recent years, at the same time as capital has reached record levels due to lower catastrophe losses and the entry of capital markets players.
“Reinsurance premium growth has remained moderate since the crisis, at about half the pre-crisis average,” the IAIS’ report explains.
Under that backdrop it’s no wonder competition has been fierce and market conditions tense.
The IAIS concludes; “Conditions in the global reinsurance market are expected to remain competitive and challenging. Reinsurers’ earnings have been heavily supported in recent years by benign catastrophe experience and significant prior-year reserve releases. These trends are, at least in part, due to luck. Although this has allowed reinsurers to consistently maintain relatively comfortable profitability measures in recent years, the returns may not be sustainable.”
