Profitability of global reinsurers could drop to six-year low

The overall profitability for AM Best's composite of global reinsurers could drop to a six-year low, and the ratings agency estimates a 2017 combined ratio of 110 percent for the sector, with return on equity (RoE) ranging from 0 percent to -5 percent.

This compares with a five-year average combined ratio of 91 percent, and a five-year average RoE of 11 percent.

An AM Best briefing, published on November 15, examined the extent of which the recent catastrophes could impact global reinsurers' earnings.

Regarding hurricanes Harvey, Irma and Maria - along with the central Mexico earthquake - the ratings agency said that the sector, on average, has reserved these loss events with the assumption that the losses accumulate to roughly $90 billion, below previously circulating modelled loss figures.

From completed surveys, AM Best suggested cumulative net catastrophe losses for the reinsurance companies are between $20-25 billion.

AM Best estimates that primary companies retained around half of the $90 billion, leaving around $20-25 billion of losses going to alternative capital, mostly in the form of collateralised retro.

With regard to its estimated combined ratio, the ratings agency noted the last time the global reinsurance composite reported a combined ratio about 100 percent was in 2011 due to a series of global catastrophes, including the Japan and New Zealand earthquakes, along with flooding in Thailand.

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