Reinsurance demand increasing with P&C cession ratio up after several years
Source: Middle East Insurance Review | Oct 2016
Reinsurance demand has increased over the past 18 months with the cession ratio across the global P&C sector registering a small rise for the first time in several years. This trend is expected to continue for the remainder of 2016, according to Aon’s Reinsurance Market Outlook report released in Monte Carlo.
The narrowing gap between reinsurance supply and demand over the past year was driven by the improved economics of purchasing and reassessment of the core value of the product. “However, ample capacity remains available to support current growth aspirations and risk transfer needs,” the report said.
Reinsurance capital is currently at peak levels, as further declines in interest rates have built the stock of unrealised gains on bond portfolios and boosted the relative attractiveness of non-correlating insurance risk among institutional investors. At the same time, more reinsurance is being purchased.
The lower pricing points delivered by alternative capital are clearly a factor, but the broader point is that reinsurance is growing in relevance as a proven mechanism for sharing risk, managing capital and controlling earnings volatility in the current environment. This is partly explained by the global trend towards risk-based regulatory regimes, which fully recognise the beneficial impact of reinsurance on cedents’ capital positions.
Mr Eric Andersen, CEO, Aon Benfield, said: “The catalysts for this increased demand for property and casualty reinsurance include factors such as the emergence of poor underwriting results in certain casualty classes, out-sized losses from regional exposures, and the introduction of the Solvency II regulatory regime across the EU.”