S&P: Global reinsurance market continues to soften

Despite a challenging environment for reinsurers, with fierce competition leading to declining prices, rating agency Standard & Poor’s (S&P) said that it does not expect to see much rating actions over the next year.

Speaking at S&P’s pre-Monte Carlo Rendez-Vous briefing, Dennis Segrue, director and reinsurance sector specialist for EMEA Financial Services Group at the company, said that supply and demand dynamics continue to impact pricing.

“When we look at the reinsurance sector over the last twelve months we think that reinsurers continue to operate in a very challenging environment,” Segrue said. “Credit conditions remain negative as pricing continues to decline, capital continues to reach record levels and we think that the profitability of the market will continue be a challenge for most players, especially compared to their recent strong history.”

According to S&P although many reinsurers may find it difficult to maintain strong profitability over the next 24 months the defensive plays that many have put into place have helped to prove the resilience of the market.

However, S&P foresee pricing to continue to decline over the next year, albeit at a slower pace. The rating agency said that in the property catastrophe market rate declines had been around 15% to 25% in 2014, but that this would slow to 5%-10% in 2015.

With a growing number of companies choosing to merge as the result of the pressure in the market so far in 2015 Segrue said that S&P expected that trend to continue, but added the caveat that the number of possible combinations was declining as the market only contained a certain number of players.

With investment returns at a low S&P said that it saw earning deterioration to be “unavoidable”, with many companies reporting weaker underlying results in the first half of 2015 than were seen in 2014.