AM Best maintains negative outlook
According to AM Best, the global reinsurance market in 2017 is wrestling
with the French saying ‘plus ça change, plus c’est la même chose’—
usually translated as ‘the more things change, the more they stay the same’.
Speaking at the AM Best market briefing at the Monte Carlo Rendez-
Vous, Greg Carter, managing director of analytics, said that the industry
in 2017 was dealing with the same issues he identified at the 2016 event.
These include the fact that US debt remains very high, interest rates are
low, housing bubbles have formed in many areas—with subprime reappearing
in the US, albeit on a small scale, terrorism appears to be rampant, there is
much uncertainty over Brexit and the stock markets remain at all-time highs.
Looking at current global market trends in 2017, Greg Reisner,
director of property/casualty, said that some companies are better
diversified than others, so they will be able to withstand losses from
natural catastrophes more easily. He added that re/insurance as a whole
industry is well capitalised.
However, AM Best pointed out that the 2016 composite combined
ratio was now 101 percent—the highest in five years. The rating agency
stated that due to the recent natural catastrophes (potentially including
Hurricane Irma) the 2017 figure will be higher than that.
Looking at the top 10 largest reinsurance groups Robert DeRose,
AM Best market briefing
vice president, reinsurance, noted that this year Munich Re has lost its
number one position to Swiss Re, as the latter had benefited from a quota
share deal with AIG. Looking at the list he added that PartnerRe has
been expanding into life business. The top 10 companies now control
68.6 percent of life & non-life reinsurance gross premiums written.
However, DeRose stressed, there are some potentially tough times
ahead for the industry.
“Risk-adjusted returns are strained as pressure continues bearing
down on underwriting margins and investment yields offer little help,”
“The market headwinds at this point present significant longer-term
challenges that industry players need to work through.
“AM Best has said that companies that are not proactive will not lead
their own destiny. M&A will continue to be a part of the landscape over the
next few years but M&A is not a cure and also has its own potential dangers.”
Carter noted that in terms of Brexit, there remains great uncertainty
but business is carrying on as normal. The London Market has been
worrying over losing its status as a reinsurance hub, but so far no single
centre in Europe has emerged as a rival. In addition, he pointed out,
London has a huge reinsurance infrastructure and this would take time
AM Best noted that it was too soon to gauge the impact of Hurricane
Irma but Reisner was able to comment on Hurricane Harvey.
“AM Best does not expect a significant number of rating actions for
AM Best-rated entities to be associated with Hurricane Harvey. However,
rated entities with significant market share in the region impacted will
be evaluated relative to AM Best’s previous loss expectations and any
material deviations could potentially lead to negative rating action in the
form of under-reviews, outlook revisions or downgrades,” Reisner said.
AM Best is also taking the view that the global market will continue to
become more efficient as all players strive to become closer to the client.
Expenses are being squeezed and brokers are under long-term stress.
As a result, the rating agency said, the role of brokers or even their
size might change over the long term. DeRose pointed out that many of
the usual lines are blurring as everyone tries to get closer to the client, and
that as a consequence strategies are evolving to cope with this.
AM Best identified a number of potential opportunities for the market,
which include cyber insurance, flood, mortgage, terrorism and insurtech.
The AM Best briefing concluded with the statement that capitalisation
remains strong for the market, but that performance has been deteriorating
and pressures on margins continue to mount. As a result, returns for some
reinsurance companies will fall short on a risk-adjusted basis. n
24 | MONTE CARLO TODAY | DAY 3: Tuesday September 12 2017 www.intelligentinsurer.com | www.bermudareinsurancemagazine.com