International financial services rating agency, Fitch Ratings, has highlighted a trend of non-life reinsurers moving into specialty lines, as they seek pockets of premium growth to offset stiff competition in more traditional business lines.
Fitch Managing Director, Jim Auden, said industry competition had weakened market pricing significantly in the last three years, in particular within the U.S. commercial insurance industry, and while the payoff for traditional business lines has taken a hit, reinsurance net premiums written (NPW) in non-life reinsurance rose by 6.1% in 2016.
The agency said 20 out of the 25 non-life reinsurers examined in its study “posted an increase in Net Premiums Written (NPW) as reinsurers continue to expand into specialty lines, such as the currently very profitable mortgage reinsurance market.
“This is partially offset by reductions in property catastrophe reinsurance business as prices continue to drop, with competition from the alternative reinsurance market,” Fitch explained.
Growth for net premiums written was at an average of 4.7% in property and casualty reinsurance lines – where, Fitch said, the market has been dampened by “sluggish reinsurance demand and opportunistic retrocessional reinsurance purchases.”
XL Group was the exception within this category, showing the strongest NPW growth at 73.2%, however, this is because of the firm’s acquisition of Catlin Group Limited in May 2015, rather than organic growth.
Fitch said; “Alleghany Corp. posted the second strongest reinsurance NPW growth at 17.2% driven by a large whole account quota-share treaty with Farmers Insurance Group.
“Of Europe’s big four reinsurers, only Swiss Reinsurance Company Ltd. had large 2016 NPW growth at 13.2%, while Munich Reinsurance Company, SCOR SE and Hannover Rueck SE, were flat to down slightly. Lloyd’s of London posted solid 13.9% reinsurance NPW growth in 2016 (using reported currency).”
And Swiss Re has been amongst the vanguard of reinsurers who see specialty lines as the next growth opportunity; as one of the leading pioneers of tailored business product development, Swiss Re has said it’s seen success in higher returns from specialised reinsurance products, and has laid out plans to offset competition by continuing to grow this smaller-scale but more lucrative line of business.
The reinsurance giant is also taking steps to investigate and move into cyber risk, as opportunities for reinsurance expand in this fast-developing business line, as has been highlighted by the recent devastating global ransomware attack.
Fitch said it expects further declines in premium rates and investment yields to weaken profitability, casting a negative outlook for the sector in the coming year.
But within emerging specialty lines, and the massive demand for cyber cover, which has yet to be exploited by re/insurers, the opportunities ahead appear significant, for those willing to innovate, explore and respond to the needs of tomorrow.