Reinsurers’ financial strength could be impacted by fall in profits
The first half of 2016 saw underwriting profits for the global reinsurance sector fall, while the recent profitability for several companies fell to levels that could diminish their financial strength, according to a mid-year report from Fitch Ratings.
The ratings agency had said that while the industry reported an overall profit, the profit levels were lower than the first half of 2015.
"Global non-life reinsurance profits dropped on increased natural catastrophe losses and a higher underlying run-rate loss ratio, while life and health reinsurer profits held steady on higher net premiums," said Brian Schneider, senior director at Fitch.
The calendar-year reinsurance combined ratio of 92.7 in the first half of 2016 was up from 88.3 percent for the same period in 2015.
According to the report, sixteen of the companies reported a higher reinsurance combined ratio in the first half of 2016 than in 2015.
The insured losses from natural catastrophes worldwide had widened in the first half of 2016 to above-average levels, with earthquakes in Japan contributing to the largest losses.
Fitch said that underwriting results were generally favourable, and unrealised investment gains from declining interest rates contributed to an increase in capital for the global reinsurance industry.
Fitch believes reinsurance capacity is ample as traditional reinsurance continues to compete with alternative markets.
Martyn Street, senior director at Fitch, added: "The reinsurance sector is well-positioned to manage capital if catastrophe losses return to above normal levels, but given the lack of large recent catastrophes there is a chance that some individual companies may have picked up unintended aggregations that could be unfavourable in the event of a major catastrophe."
With regard to the influx of mergers and acquisitions (M&A) activity in the first half of 2016, Fitch said that consolidation had slowed.
The ratings agency expects M&A to resume as companies focus on options to combat market pressure, and said it is likely to view negatively any individual deal that is solely driven by scale and diversity without a clear rationale.
