Reinsurers’ ‘new normal’ prompts Moody’s to switch outlook to stable
Despite difficult market conditions and deteriorating profits, reinsurers have maintained strong balance sheets and disciplined underwriting and adjusted to what has been termed a ‘new normal’. As a result, Moody’s has changed its outlook for the global reinsurance sector from negative to stable.
Moody’s managing director of managed investments Marc Pinto, associate managing director Antonello Aquino and senior credit officer James Eck discussed this change in outlook at the at the Moody’s Global Reinsurance Outlook Media Briefing ahead of the Monte Carlo Rendez-Vous.
“When you enter a cycle you always fear that companies underwrite risk they do not understand, they increase their top line, etc. They haven’t been doing that,” said Quino.
“With this change in outlook we want to signal that actually, yes, the underlying trends are negative—there is no doubt that pricing is going down—but reinsurance has been adapting and moving in a rational way.”
Since 2013, reinsurers’ profitability has fallen steadily, weighed down by softening reinsurance prices and weaker investment income due to low interest rates.
In spite of this, Quino noted, Moody’s has not seen much pressure from shareholders on reinsurers to grow, and reinsurers are not seeking growth for the sake of it.
He suggested shareholders have been reluctant to push growth in the current environment especially as the money returned to shareholders has remained quite high. Many reinsurers continue to pay steady dividends and return excess capital to equity investors primarily in the form of share buybacks.
From a ratings point of view, Eck said that the overall deteriorating profitability is more of a problem for shareholders.
“As long as companies continue to maintain their underwriting discipline and strong balance sheets, from a credit perspective things have been stable,” he said.
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