Reinsurance sector profitability to decline in 2017

The profitability of the reinsurance industry is set to fall in 2017 due to low prices and Hurricane Harvey, Moody’s said in a Sept. 4 report.

Reinsurers’ earnings rose a modest 1.4 percent in the second quarter of 2017 from the same period a year earlier, and their median combined ratio improved to 92.6 percent from 95.7 percent over the period, helped by lower catastrophe losses, according to Moody’s.

Nevertheless, Moody’s expects full-year 2017 earnings to fall compared to the previous year given the cohort's weaker performance in the first quarter and expected losses related to Hurricane Harvey. While Harvey is likely to drive an uptick in pricing in the affected regions, Moody’s does not believe property reinsurance pricing trends will be materially affected. 

Reinsurance prices are falling for a fifth consecutive year due to excess capital, prompting reinsurers to trim their exposure and cut costs.

As competition intensifies, reinsurers seek new opportunities, Moody’s noted. Intense price competition was reflected in the second quarter in declining property/casualty (P&C) reinsurance premiums, with around half of the cohort reporting lower volumes in this segment. However, revenues rose as reinsurers selectively grew their primary specialty books, entered new lines such as mortgage (re)insurance, or grew modestly in life and health reinsurance. Many also continue to cut costs and adopt new technologies in response to structural changes in the market, Moody’s noted.

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