Pricing pressure weighs on global reinsurers’ H1 results

Global reinsurers' first half 2017 results provide further evidence of continuing pressure on pricing and earnings, Fitch Ratings said on Aug. 21.

Non-life reinsurance underwriting profits fell in the first six months of 2017 due to lower surpluses from prior-year reserves. Most companies were hit by the cut in the Ogden discount rate for UK liability business, which will lead to higher lump-sum payments being calculated for long-term care costs or lost earnings.

But underwriting was still profitable, helped by lower catastrophe-related losses. Worldwide natural catastrophe insured losses were $19.5 billion, 39 percent down compared to the same period in 2016 and 33 percent below the 10-year first-half average.

Intense competition among global reinsurers and the abundance of capital invested in the sector mean pricing will continue to weaken, with low investment yields putting further strain on profitability. The sector outlook remains negative and we expect consolidation as reinsurers have little opportunity for organic growth.

There was record issuance of catastrophe bonds in the first half of 2017, driven by demand from capital market investors attracted to reinsurance risk to diversify their exposure.

The rating outlook for the global reinsurance sector remains stable, driven particularly by very strong capitalisation. But further deterioration in profit metrics could result in negative rating actions, Fitch noted in the report titled "Global Reinsurers: Mid-Year 2017 Financial Results".

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