The global reinsurance industry boasts a stable outlook in recognition of its resilience in the face of a challenging operating environment, says Moody’s Investors Service in a new report.
The rating agency says the industry faces a number of challenges, including continued low interest rates, weak demand amid sluggish economic conditions in North America and Europe, and, increased competition from alternative markets. Indeed, it estimates that $10 billion of new alternative capital has entered the industry over the past year; which has had a major impact on current reinsurance market dynamics and pressured pricing, it says.
However, Moody’s says it believes that “the adverse effect of any headwinds should remain fairly contained as reinsurers navigate the currently challenging environment and adapt to the evolving marketplace for insurance risk transfer.”
“Key strengths of the sector are its resilience and underwriting discipline. Despite immense insured catastrophe losses in 2011 and 2012, and a low interest rate environment that has slashed investment income, the reinsurance sector remained profitable and increased its equity capital,” said James Eck, vice president and senior credit officer at Moody’s.
“While a continued inflow of alternative capital has the potential to alter the core business model of reinsurers, many firms in the sector have been preparing for this eventuality for years through their participation in sidecars and the insurance-linked securities market,” adds Eck.
Moody’s says that it expects that reinsurers with large capital bases, a high degree of diversification, and an ability to leverage both traditional and third-party capital, will be best positioned.