Reinsurance: “Steep Decline” in Operating Results in H1 2016--Fitch
From Artemis:
Reinsurance company operating results suffered a “steep decline” in the
first-half of 2016, according to Fitch Ratings, as return on average
common equity (ROAE) plummeted by 36% compared to the same period in the
prior year.
Reinsurers remain under pressure and, as ever at this time of year
with the key industry meetings of the Monte Carlo Reinsurance Rendezvous
and Baden-Baden approaching, analysis of how they are coping with the
soft market and heightened competitive environment by the rating
agencies is ramping up.
Fitch Ratings looks at reinsurance company performance in its latest
look at the U.S. property & casualty re/insurance market and finds
that performance has declined sharply as reinsurers struggle through the
soft market and deal with rising catastrophe losses.
Returns on equity have been waning for a number of years now, but Fitch highlights a sharp drop in the first-half of 2016.
“After years of outperforming the other four primary insurance
subsegments, Fitch’s universe of reinsurers reported a steep decline in
operating results through first-half 2016 as operating ROAE decreased to
7.0%, a 36% decline over first-half 2015,” the rating agency explains.
Fitch notes that there have been some bright points, with the effects
of consolidation and a less appetite to keep decreasing pricing
evident, as too was solid growth in premiums underwritten over the prior
first-half.
But catastrophe losses hit reinsurers the hardest in P&C, “with
losses as a percentage of earned premiums more than doubling and adding
6.2 points to the combined ratio.”
All reinsurers in the group reported on suffered higher catastrophe
losses in the first-half of 2016, apart from RenaissanceRe and Allied
World Fitch says.
Reserve releases continue to be vital to reinsurers profitability,
with the group covered in Fitch’s report releasing 7.3 points worth in
H1 2016. Excluding the impact of reserve releases the group’s combined
ratio would have been verging on unprofitable, at 99.6% which is up
considerably on the same metric in H1 2015 at 95.5%.
And that is not simply due to catastrophe losses, the combined ratio
minus catastrophe losses and reserve development is also up, from 93% in
H1 2015 to 93.4% in H1 2016, which Fitch says shows that “run-rate
results continue to decline.”...MORE
