Reinsurance non-life

Market overview

Global non-life reinsurance premiums in 2018 totalled about USD 180 billion, around 28% of which was attributable to ceding companies in emerging markets. In general, reinsurance demand is a function of the size and capital resources of primary insurance companies, as well as of the risk profile of the insurance products provided.

Market performance

Global premiums in non-life reinsurance are estimated to have grown by around 5% in 2018 in real terms, mainly based on rapidly increasing cessions from emerging markets.

The impact from natural catastrophe losses is less severe after last year’s record global insured of USD 144 billion disaster-related losses. However, claims were mounting up and are estimated at more than USD 70 billion for the re/insurance industry. The largest natural catastrophe losses were from wildfires in California, hurricanes making landfall in the US (Michael, Florence), and from typhoons and floods in Japan.

Reinsurance prices stabilised at the 2018 renewals with rate increases in loss affected lines and regions, but with little spill-overs into non-loss affected lines. Preliminary data indicate a combined ratio of around 98%–100% for 2018, a significant improvement compared to last year’s 108% which was heavily impacted by the huge natural catastrophe losses. However, this does not reflect underlying underwriting profitability, because natural catastrophe losses have been partly lower than anticipated and the claims ratio has been reduced by positive reserve releases from redundant reserves for prior years’ claims. Excluding these factors, the underlying combined ratio was unchanged at around be around 100% for 2018.

Despite a trend towards higher interest rates in the US in 2018, the investment environment remained challenging with persistently low-investment yields and increased volatility of capital markets. Before this difficult background, the industry achieved only a 2.5%–3% investment result. As a result, the overall profitability was also at a low 6%–8% compared to historical standards.

The reinsurance industry’s capital base remains strong. On the one hand, the capital position of global reinsurers, the traditional source of capital, was stable during 2018 at around USD 340–350 billion as a result of high natural catastrophe losses and continued strict capital management which returned almost all of the industry’s net income to shareholders through dividend payments and share buy-backs.

The alternative capital (AC) sector on the other hand expanded again significantly from USD 75 billion by end of 2016 to around USD 90–100 billion at the end of 2018: the high loss burden in 2017 didn’t halt the massive capital inflow in the first half of the year, but towards the end of 2018, the were first signs of hesitancy among capital providers regarding further investing into this risk class. Two factors acted as potentially deterrent to investors: a) the mounting losses from wildfires in California for the third year in a row and b) from still gradually escalating losses (“loss creep”) from Hurricane Irma in 2017, which created increasing uncertainty regarding final loss numbers and prevented a smooth roll over of investments into new ventures.

Outlook

In 2019 and 2020, the reinsurance is expected to expand at least with the same growth rate as the primary non-life market. Cessions from emerging markets are forecast to develop stronger than those from the advanced markets, given the stronger dynamics of the macro-economy and the primary insurance markets.

Reinsurance capital will remain abundant and capitalisation of the industry will remain strong going forward. Nonetheless, reinsurance pricing which has stabilised in 2018 is expected to not further soften in 2019.