Reinsurance non-life

Market overview

Global non-life reinsurance premiums in 2019 totaled about USD 190 billion, with 28% coming from 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

We estimate that global premiums in non-life reinsurance grew by around 2% in real terms in 2019, with moderate expansion and stable reinsurance demand in both emerging and advanced markets.

The reinsurance industry currently faces mixed trends. The sector’s capital base remains very strong, allowing reinsurers to fulfill their role as the backbone of the primary insurance industry and to support the resilience of societies, businesses and households. The capital position of global reinsurers, the traditional source of capital, went up around 5% to approximately USD 360 billion during 2019. However, the alternative capital sector exhibited its first decline in capacity in 2019, after several years of soaring capital inflows. The capital base went down by 7% to below USD 90 billion at the end of 2019 from USD 95 billion at the end of 2018 due to loss payments and investors withdrawing funds.¹

At the same time, the reinsurance industry experienced a third year of elevated insurance losses. While 2017 and 2018 were mainly impacted by natural catastrophes, the 2019 claims experience was driven by a broader range of significant losses, including heavy natural catastrophes, loss creep from previous year's catastrophes, man-made disasters such as the Ethiopian Airlines crash and subsequent Boeing 737 MAX fleet grounding, the collapse of the tour operator Thomas Cook, and increasing claims in US liability insurance.

Reinsurance prices, which improved slightly in the 2018 renewals following the 2017 hurricane losses, were broadly stable in the 2019 renewals. There were rate increases in loss-affected lines and regions, but little spill-over into non-loss-affected lines. Preliminary data indicate a combined ratio of around 98% for 2019, an improvement from 101% in 2018.

Overall profits of the reinsurance industry were boosted by the positive development of equity markets and realised gains from further declines in interest rates, which led to an ROE of around 12%. Excluding these windfall gains, however, investment income remained below 3%, and overall profitability was comparably low, with an ROE of 6–8%.

Market outlook

In 2020 and 2021, we expect the reinsurance industry to expand by at least the same growth rate as the primary non-life market. Cessions from emerging markets will likely develop stronger than those from advanced markets, given the higher dynamics of the economy and the primary insurance markets.

We expect broadly stable to improving non-life reinsurance prices as a result of rising claims and the end of abundant retrocession capacity.

¹ Source: Guy Carpenter, 2020 renewal briefing, January 2020