Tuesday, August 30, 2016

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