Fitch confirms big cedants retain more

A study by Fitch has given more weight to the increasingly widely-held view in the market that many bigger cedants are retaining more business. The rating agency said primary players are becoming more comfortable holding certain risks.

“In some of our research, cedants are actually retaining more business. One of the reasons behind this is a reduction in loss events, which makes primary insurers more comfortable with accepting risk and volatility,” said Martyn Street, senior director in the EMEA insurance team at Fitch Ratings in London.

“Changes in the purchasing habits of larger primary insurers are becoming more centralised, and there’s a combination of programmes and risks leading to another level of demand for reinsurance products.”

Street added that while certain parts of the market have become ripe for merger activity, large-scale and transformational mergers in the European are very unlikely although smaller acquisitions will take place later this year.

“We’re not expecting to see any transformational mergers, although we are expecting smaller acquisitions to take place later this year and early next year as companies try to get the best value for their shareholders,” he said.

He added that alternative capital has had a significant effect as it has moved into and grown in presence in the US market. But it has had less of an effect in the European space. This, he explained, was because of the risk models that are available in Europe.

“The US market has been much more widely modelled in terms of events. Generally, alternative investors like to use models to understand the risk being placed. There’s a good understanding of wind risk in Europe, but in the casualty sector it’s much less clear,” said Street.

Fitch expects future growth in the European market to be slower than in the US market, although a certain amount of alternative capital has moved in to the European space, with a number of European companies using alternative markets to issue cat bonds.

Street said that in the property/casualty sector there has been an extended period of low levels of major losses. However, in Europe there have been some larger losses this year, such as European storms and German hail. He explained that the losses have historically been relatively small in reinsurance terms.

“Reinsurers have generally remained well capitalised and have offered abundant capacity. Supply will continue to outstrip demand,” he said.

Street added that Fitch’s expectation for the January 1 renewals is that pricing will continue to decline, with a particular focus on the European markets. In the April renewals, Fitch expects reductions in the Asian markets. This is in contrast to the last couple of years, where price falls were seen in the US property casualty markets.