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Market conditions continue to challenge reinsurers

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Challenging market conditions continue to vex reinsurers, according to a report released Wednesday by A.M. Best Co. Inc.

In “Down But Not Out: Reinsurers Look to Reposition Amid Market Disruption,” Best says that the accident year underwriting loss is only the second one in the past 10 years other than 2011, which had several “significant” global catastrophes, according to the report.

The sector continues to be hit by “declining rates, broader terms and conditions, unsustainable reserve takedowns, low investment yields and continued pressure from convergence capital,” Best said in its report.

Best also says the sector had an average accident-year combined ratio of 101.0% and return on equity of 8.2% for 2016, “a continuation of the deterioration seen in the sector since 2013,” best said. The calendar year combined ratio was 95.2%.

The report says at year end 2016, dedicated reinsurance capacity was $420 billion, up from $400 billion at the end of 2015.

Willis Re index

Aggregate net income for the Willis Reinsurance Index group of companies for the first half of 2017 fell to $8.3 billion from $14.5 billion in the first half of 2016, “due to ongoing market pressures,” Wills Re said Wednesday in its latest Reinsurance Market Report.

Figures are based on the Willis Reinsurance Index group of companies which in 2017 includes 36 companies from across the globe

Combined ratios for the Index deteriorated to 95.0% from 94.1% in the first half of 2016, while investment yields fell to 2.8% from 3.1%. Shareholders’ funds rose 1.2% to $348.2 billion at the end of the first half of 2017, from $344.1 billion at year-end 2016

“Ongoing market pressures are undoubtedly manifesting themselves in a diminishing underlying return on equity and further impacting reduced net incomes,” John Cavanagh, global CEO of Willis Re, said in a statement. “This deterioration is further weakening the global reinsurance industry’s performance.”

“However, despite these challenging conditions shareholders’ funds have strengthened, maintaining robust balance sheets across the market,” Mr. Cavanagh said.