Gap in two-tiered market growing: S&P

The gap between first tier and second tier reinsurers is growing as cedants gravitate towards the first tier. This is the finding of Standard & Poor’s (S&P) in its latest report on large US cedants.

Speaking to PCI Today, Kevin Ahern and Tracy Dolin explained that top tier reinsurers can offer strategic value to cedants, such as investments in modelling, consultancy advice and by leading reinsurance programmes.

On the merger and acquisition (M&A) front, S&P believe that specialty insurers will become likely targets for domestic and international entities.

“Specialty insurers are attractive because of their performance relative to the benchmark. The market is back to its pre-financial crisis activity,” said Dolin.

International companies are likely to acquire in search of diversification and return on investment while domestic acquisitions are expected to be strategic, in complementary lines.

“Foreign acquirers are more likely to allow the insurers to continue autonomously, while domestic insurers prefer to integrate,” added Ahern.

The analysts also expect an increase in the writing of cyber business, although they believe that the market has a long way to go in terms of growth.

“Only 25 percent of the Fortune 500 companies currently purchase cyber insurance, but we expect this to change as companies begin to perceive the risk more fully,” explained Dolin.

“Four companies which offer cyber insurance really stand out from the crowd but even those are subject to a host of exclusions and are mainly focused on third party risk,” she added.