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Softening rates lead European cedents to purchase less reinsurance

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Europe’s largest reinsurance cedents have benefitted from continued soft reinsurance rates across many lines of business and continued a trend of buying less reinsurance, A.M. Best Co. Inc. said Monday in an analysis.

Nonlife premiums ceded by Europe’s 20 largest group buyers of reinsurance fell by 8.2% to €39.23 billion ($44.36 billion) in 2013, compared with €42.74 billion ($48.32 billion) in 2012, Best said.

According to the report, while gross premiums written by Europe’s 20 largest reinsurance buyers increased slightly in 2013 to €316 billion ($357.59 billion) from €315 billion ($356.45 billion) in 2012, the cedents’ retention ratios increased 1.2 percentage points to 87.6% in 2013.

Best said it “expects that when 2014 data become available, there will be a continued increase in retained premiums by Europe’s largest cedents.

Softer rates have been the “most significant contributor to an overall drop in reinsurance ceded by the 20 largest cedents, driven chiefly by excess capacity in the market.”

There was, however, considerable variation among Europe’s largest buyers of reinsurance, the report said, with insurers that have the biggest exposure to low-frequency, high-severity events, such as natural catastrophes, buying the most reinsurance and retrocessional coverage.

While overall the retention ratio for the largest European buyers of reinsurance increased in 2013, 11 companies in the group decreased their retention level, the report showed.

Lloyd’s of London ceded the most premiums in 2013 by a considerable margin, the report showed — €7.04 billion ($7.96 billion) of ceded premiums in 2013, compared with €7.42 billion ($8.40 billion) in 2012.

The second-largest volume of premiums ceded was posted by Zurich Insurance Group, which ceded €4.33 billion ($4.90 billion) of premiums in 2013 compared with €4.45 billion ($5.04 billion) in 2012.

While reinsurance coverage for peak catastrophe risks remains “fundamental,” A.M. Best said, cedents “have been increasing their limits on working layers for catastrophe and larger risks, as these tend to be more expensive to reinsure.”

Best said it considers Europe’s largest reinsurance buyers to be sufficiently capitalized to increase their retention levels provided that the risks underwritten at primary level are properly priced and accumulations of risk are well-managed.