Europe a challenging environment for small reinsurers
A growing number of larger insurers in Europe have restructured their reinsurance programmes whereby they place centralised multi-risk covers through global broker programmes—a trend that has made life tougher for smaller reinsurers.
This is according to Graham Coutts, director at Fitch Ratings, who suggested that having the scale and ability to deploy large lines of underwriting capacity in bigger volumes is growing in importance—to the benefit of the bigger European players.
“Being able to lead programmes gives these reinsurers greater ability to influence pricing and terms and conditions. The large European reinsurers are better able to withstand the soft market conditions than smaller global competitors,” said Coutts.
Furthermore, Fitch expects structured solutions to continue to drive demand in the European reinsurance industry, as cedants increasingly seek risk transfer opportunities to strengthen their capital positions under risk-based regulatory regimes such as Solvency II.
“The main beneficiaries of this demand are likely to be the financially strongest reinsurers which can offer a greater breadth and depth of cover than their smaller competitors,” he added.
Against a backdrop of intense market competition and capital levels, Coutts said that M&A remains a hot topic not just in Europe but in other markets, following several acquisition announcements in the second half of 2018.
“These factors, coupled with the impact of the US tax reforms, should support M&A activity for the sector into 2019 particularly in the Bermuda market,” he said.
In Europe, SCOR has rejected an unsolicited offer by French mutual insurance company Covea to acquire the company.
“For the major European reinsurers, outside of Covea’s desire for a deal with SCOR, smaller bolt-on purchases that offer meaningful share in new markets or segments remain more likely than large transformational deals,” Coutts added.
2017 was a record year for catastrophe losses and there have been significant losses in 2018 as well, although Coutts believes the industry is well placed to absorb these losses and that pricing is likely to remain soft.
“We believe the reinsurance market is becoming more localised, so large losses in the US are unlikely to drive wider improvements in the rest of the market, including in Europe,” said Coutts.
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