Increased competition in the global reinsurance sector likely will weaken companies' profitability in 2014 and 2015 and poses the greatest threat to the sector, Standard & Poor's Corp. said Monday.
In a report, “Passed the Tipping Point: Competition and Soft Pricing Could Lead to Rating Pressure for Global Reinsurers,” S&P said about half of the global reinsurers it rates are exposed to these competitive pressures.
Some reinsurers that are “unable to navigate the difficult new landscape could experience negative rating actions,” the rating agency said.
The marketplace is being reshaped by an oversupply of capacity coupled with reduced demand for reinsurance by cedents, S&P said.
Returning capital to shareholders would likely only partially offset the growth in capacity, S&P said, “as we anticipate that the market will retain roughly two-thirds of its earnings.”
In recent months, there have been “significant rate declines in almost all global lines,” S&P said.
Rates for global property catastrophe business fell about 10% to 15% in Europe, up to 10% in the Asia-Pacific region and dropped about 15% to 25% in the United States, the report said.
Many other lines of business saw rate decreases of as much as 20%, it said.
“The Jan. 1 renewal date did not see a widespread relaxation of terms and conditions or the significant emergence of reinsurance consortia,” the rating agency said. “But price declines and pressure for more lax terms and conditions indicates that the underwriting cycle remains very much alive.”
While many reinsurers http://www.businessinsurance.com/article/20140119/NEWS04/301199975 held firm on terms and conditions at the recent renewals, S&P said “we believe that recent talk of looser terms and conditions could spell the beginning of a shift away from the sense of reinsurer unity in underwriting discipline that we have perceived in recent years.”