Analysts at investment bank Berenberg have argued that the reinsurance market is currently very attractive as rates are continuing their upward trajectory, despite the fact that primary insurers remain well capitalised and there is seemingly ample capacity in the sector.
The analysts noted that this is unique versus previous hard-market cycles and is representative of the increased risk aversion which characterises the market at the moment due to the global pandemic and ongoing economic uncertainty.
However, the share prices of the reinsurers continue to lag the market and the ongoing trend of increasing natural catastrophe losses has undoubtedly dampened investors’ enthusiasm for the stocks.
Currently the interest rates remain low, while there is also the spectre of inflation, along with an unprecedented level of speculation regarding the future of natural catastrophes.
In its Sigma 3/2021 report in July, Swiss Re forecast that by the end of 2022, total global premium volumes will surpass $7 trillion for the first time ever as the tailwinds for the sector outweigh the headwinds.
The report also argues that property and casualty (P&C) business is becoming riskier and more complex which will drive capital requirements: the need for reinsurance is therefore likely to continue to rise.
This has all led analysts to believe significant opportunities await the four largest global reinsurers. In this changing risk world, we think barriers to entry are likely to increase rather than diminish.
The report also highlighted how cedants are looking for long- term partners with strong balance sheets and significant expertise, and we think this is only likely to be exacerbated over the coming decades.
This has led Berenberg to believe that the reinsurance market has clear structural growth opportunities which will further add to the earnings power of this subsector.
