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Global
Reinsurance
Highlights 2019
PUBLISHED BY:
Global Reinsurance Highlights
2019 Edition
For further information, please visit our reinsurance page on our website www.spratings.com
Global Reinsurance Highlights | 2019 3
Enabling stability
in shifting currents
S&P Global Ratings’ Annual Bermuda November 5-6, 2019
Reinsurance Conference The Hamilton Princess
Hot topic panels and key insights from
Hotel, Bermuda
leading industry experts will cover: Register now:
– Economic conditions and geopolitical risks spglobal.com/bermuda
– Structural changes in the sector
– Reinsurance pricing adequacy heading into 2020
– The future state of ILS and alternative capital
– Evolution of the reinsurance value chain
– Climate change and catastrophe risk
– Cyber threats and opportunities
Don’t miss this year’s leading reinsurance
industry event, offering essential market
insights, top industry trends and valuable
networking opportunities!
spglobal.com/bermuda
Contributors
For S&P Global Ratings For Intelligent Insurer
Project Leaders Editorial Project Coordinator Publisher
Johannes Bender Fleur Hollis, London Graeme Cathie
Taoufik Gharib Tel: +44 (0) 203 301 8238
David Masters Editorial Team gcathie@newtonmedia.co.uk
Heather Bayly, London
Contributors Rose Burke, Paris Editor
Manuel Adam, Frankfurt Elizabeth Kusta, Chicago
Wyn Jenkins
Johannes Bender, Frankfurt Jo Parker, Toronto
Tel: +44 (0)203 301 8214
Charles-Marie Delpuech, London Alexandria Vaughan, London
Tracy Dolin, New York wjenkins@newtonmedia.co.uk
Mathieu Farnarier, London
Taoufik Gharib, New York Sub editor
Robert Greensted, London Ros Bromwich
Jean Paul Huby Klein, Frankfurt
Maren Josefs, London Director
Milan Kakkad, Mumbai Nicholas Lipinski
Ali Karakuyu, London
Saurabh Khasnis, Centennial
Design and Production
Hardeep Manku, Toronto
Garrett Fallon
David Masters, London
Lauren Slade, New York Russell Cox
Brian Suozzo, New York
Simon Virmaux, Paris Cover image
Shutterstock / vertre
Data Team
Samantha Byrne, London
Antun Zvonar, New York
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Global Reinsurance Highlights | 2019 5
Contents
8 Soundbites
10 Reinsurance Outlook
Secular Headwinds Continue Despite Positive Pricing Momentum
18 Catastrophe Risk
Global Reinsurers Aim To Rebalance Their Natural
Catastrophe Exposure
24 California Wildfires
Jolted By California Wildfires, Re/Insurers Recalibrate Their
Risk Appetite
28 Cyber Risk
Global Reinsurers Face The Iceberg Threat Of Cyber Risk
32 ILS
Convergence Capital Will Remain Key For Reinsurers
Despite Recent Losses
38 Adverse Development Covers
Re/Insurers Seek Structured Solutions For Their Legacy Business
44 Reinsurance M&A
More Consolidation To Come For Global Reinsurers
51 Global Reinsurance Peer Review
58 Top 40 By Company
60 Global Reinsurers By Country
72 Ratings Definitions
74 Addresses
6 Global Reinsurance Highlights | 2019
Foreword
Reinsurance Secular Headwinds
Continue Despite Positive Pricing
Momentum
By Johannes Bender, Taoufik Gharib, and David Masters
T
he renewal discussions for 2020 in Monte Carlo this year subpar shareholder returns due to cost inefficiency, margin
are happening after back-to-back record catastrophe pressure, and still-excess capacity. In More Consolidation To
years in 2018 and 2017, which hit traditional reinsurers Come For Global Reinsurers, we outline the main drivers for
and alternative capital. Property casualty reinsurance prices further consolidation among reinsurance, the insurance, and
have been hardening during the 2019 renewals, giving them insurance-linked security markets, and the potential credit
some positive momentum heading into 2020. The fundamental impact of further consolidation.
secular competitive trends have not changed, however. Global Reinsurance Highlights 2019 again includes a peer
In our lead article, 2020 Reinsurance Sector Outlook: Secular comparison supplement that exhibits some of the important
Headwinds Continue Despite Positive Pricing Momentum, we data points and trends that we’ve identified from our analysis of
discuss why we continue to have a stable outlook for the the sector. This year’s publication captures the key issues facing
global reinsurance sector. The article also discusses the reinsurance management, investors, and other stakeholders.
main challenges and opportunities for the sector, the main We hope that you will enjoy the 2019 edition and welcome your
competitive dynamics with regard to alternative capital, pricing, feedback on possible enhancements for future years. n
and mergers and acquisitions, as well as our earnings forecast
for the sector versus its cost of capital. Johannes Bender
In Global Reinsurers Aim To Rebalance Their Natural Frankfurt, (49) 69-33-999-196
Catastrophe Exposure, we take a closer look at global reinsurers’ johannes.bender@spglobal.com
exposure to 2018 and 2017 natural catastrophe losses. We
also examine how reinsurers’ appetite for tail risk has changed Taoufik Gharib
following rate increases, and how the sector is equipped for New York, (1) 212-438-7253
future natural catastrophe losses. taoufik.gharib@spglobal.com
The California wildfires of 2017-2018 surprised re/insurers
by generating insured losses of about $33 billion, beyond the David Masters
market’s understanding of the risk. In Jolted By California London, (44) 20-7176-7047
Wildfires, Re/Insurers Recalibrate Their Risk Appetite, we discuss david.masters@spglobal.com
how re/insurers were hit and how the market may react in terms
of pricing and risk assessment for California wildfires.
Economic and insured cyber losses are mounting for insurers
and reinsurers. In Global Reinsurers Face The Iceberg Threat Of
Cyber Risk, we have a look at the cyber insurance market and at
the main challenges and opportunities re/insurers are facing to
leverage that fast growing risk.
The article Convergence Capital Will Remain Key For
Reinsurers Despite Recent Losses discusses how investors in
insurance-linked securities reacted to negative returns over the
past two and a half years, as well as how convergence capital
will affect competitive dynamics in the global reinsurance
sector.
In Re/insurers Seek Structured Solutions For Their Legacy
Business, we explain how re/insurers are using structured
solutions such as loss portfolio transfers and adverse
development covers to optimize their portfolios and achieve
better risk-adjusted returns.
Reinsurers’ merger and acquisition activity remains a
hot topic, particularly because some players are posting
Global Reinsurance Highlights | 2019 7
Soundbites
Reinsurance Outlook
Taoufik Gharib, Johannes Bender, Hardeep Manku, David Masters, Ali Karakuyu
• Robust capitalization, sophisticated enterprise risk management practices, and still-rational underwriting
continue to underpin our stable outlook on the global reinsurance sector.
• The sector continues to battle secular headwinds, as the influx of alternative capital challenges reinsurers’
business models, despite its recent slowdown, and we expect its growth to pick up once the latest bumps are
smoothed over.
• Property and casualty reinsurance prices have been hardening during the 2019 renewals in reaction to record
back-to-back catastrophe years in 2017-2018 and the resulting loss creep, with positive momentum heading
into 2020.
• We’ve revised our 2019-2020 earnings forecast slightly upward following hardening reinsurance prices, with
an expected combined ratio of 95%-98% and a return on equity of 7%-9%.
• The reinsurance sector didn’t earn its cost of capital in 2017 and 2018, but 2019 looks somewhat more
promising.
Catastrophe Risk
Charles-Marie Delpuech, Johannes Bender
• Global reinsurance has remained resilient, despite insured losses from natural catastrophes reaching a
record back-to-back high over the past two years.
• Some reinsurers have chosen to stop retrenching; instead, they are taking advantage of higher premium rates
by increasing their exposure to catastrophe risk.
• Although we expect risk discipline to prevail, global reinsurers’ greater exposure to catastrophe risk could
heighten their earnings and capital volatility.
California Wildfires
Hardeep Manku, Taoufik Gharib, Saurabh Khasnis, Brian Suozzo
• The California wildfires of 2017-2018, with insured losses of about $33 billion, surprised re/insurers as the
losses were outside of the market understanding of the risk, and they affected both property and casualty
business lines.
• These wildfires, in conjunction with other catastrophe losses, had limited impact on the creditworthiness of
re/insurers.
• There is no consensus among re/insurers on the price adequacy despite significant rate increases, or comfort
with the risk in spite of substantial updates to wildfire risk models.
• The reinsurance pricing for California wildfires could be up 30%-70% heading into the 2020 renewals;
capacity will continue to be constrained as this market remains in disarray, which will fuel further rate
increases.
Cyber Risk
Johannes Bender, Manuel Adam, Robert Greensted, Jean Paul Huby Klein, Milan Kakkad, Tracy Dolin
• Economic and insured cyber losses are mounting, and we believe considerable nonaffirmative “silent cyber”
exposure is embedded in traditional re/insurance products.
• If re/insurers do not start to screen their insurance portfolios for nonaffirmative cyber exposures or manage
them, losses could become significant and create volatility in capital and earnings in the near future.
• Underwriting cyber risks aren’t straightforward because of the potential for large accumulation risk, their
human origin, uncertainties about diversification benefits, limited historical data, and still basic modelling and
IT expertise.
• We believe the global affirmative cyberinsurance market will continue to expand faster than the vast majority
of other traditional lines and could reach $8 billion in gross written premium by 2022, compared with about $5
billion in 2018.
• Reinsurers are well placed to harness this business potential, in our view, if they can develop cyber
ecosystems and improve cyber modeling, while managing accumulation risk and silent cyber exposure.
8 Global Reinsurance Highlights | 2019
Soundbites
ILS
Maren Josefs, David Masters, Ali Karakuyu
• The amount of convergence capital being provided to reinsurers globally has fallen for the first time in
10 years, reflecting two and a half years of negative returns and trapped collateral from large natural
catastrophes.
• Despite these challenges, we believe capital will continue to flow into the market, particularly to insurance-
linked security funds with strong underwriting, established track records of successful capital deployment
and transparent reporting.
• In our view, convergence capital will continue to play an important role in the competitive dynamics of the
global reinsurance market and bolster capacity.
• We also believe traditional reinsurers will continue to factor third-party capital into their strategies to help
them respond to the ongoing challenging competitive environment.
Adverse Development Covers
Saurabh B Khasnis, Taoufik Gharib, Hardeep Manku, David Masters
• Competitive market conditions have forced global property and casualty re/insurers to rethink their strategies
and redeploy their capital toward optimal risk/reward opportunities.
• As a result, re/insurers have shown growing interest in structured solutions, such as loss portfolio transfers
and adverse development covers , for their legacy liabilities.
• If well executed, these structured solutions can benefit cedants and reinsurers. Cedants can lower earnings
and capital volatility while reducing capital requirements. Reinsurers can enhance their business profiles and
earnings by leveraging their underwriting and claims expertise while strengthening their client relationships.
• However, these solutions do not provide a complete legal finality, and the cedants retain the ultimate risk of
policyholder claims. New Insurance Business Transfer laws in the U.S. could bridge this gap, but the laws are
still in nascent stages and not yet applied consistently across states.
Reinsurance M&A
Ali Karakuyu, Johannes Bender, David Masters, Taoufik Gharib, Hardeep Manku
• Challenging market conditions in the global reinsurance sector and cheap financing sources will continue to
drive consolidation.
• Merger and acquisition activity over the past two years demonstrates the convergence of primary insurance,
reinsurance, and insurance-linked securities markets, and the desire to diversify internationally.
• The reinsurance sector’s M&A track record is patchy from a credit perspective, and deals are typically credit-
neutral at best for the acquirer on completion.
Global Reinsurance Highlights | 2019 9
2020 Reinsurance Sector Outlook
Secular Headwinds Continue
Despite Positive Pricing Momentum
By Taoufik Gharib, Johannes Bender, Hardeep Manku, David Masters, and Ali Karakuyu
Reinsurers are battling the commoditization of their business and the rise of alternative capital
nibbling at their margins. In response, they could take a page from the playbook of other disrupted
industries to stay relevant and become more innovative.
Shutterstock / vetre
10 Global Reinsurance Highlights | 20192020 Reinsurance Sector Outlook
Chart 1: Top 40 Global Reinsurers Rating Distribution*
A
re reinsurers complacent in their 16 Chart 1: Top 40 Global Reinsurers Rating Distribution*
centuries-old industry and stuck
16
14
in their old ways of doing business?
Do reinsurance prices react only to 14
12
natural catastrophe insured losses and
adverse reserve developments? Are 12
10
(No.) (No.)
reinsurers sitting on their hands awaiting
108
external forces of change or are they self-
critical enough to initiate change from 86
within? These are some of the seminal
questions that reinsurers need to tackle 64
in the years to come.
S&P Global Ratings has kept its 42
stable outlook on the global reinsurance
20
sector and on the majority of the
A- A A+ AA- AA AA+
reinsurers it rates (see Charts 1 and 2). 0 *Financial strength rating on core operating subsidiaries as of Aug. 6, 2019.
This assessment is mostly based on A- © 2019 by Standard
Copyright A A+ Financial Services
& Poor's AA- LLC. All AA AA+
rights reserved.
reinsurers’ still-robust capital adequacy *Financial strength rating on core operating subsidiaries as of Aug. 6, 2019.
and relatively disciplined underwriting, at Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
least so far, supported by well-developed
enterprise risk management (ERM), and Chart 2: Top 40 Global Reinsurers Outlook Distribution*
an overall improving reinsurance pricing
Negative
Chart 2: Top 40 Global Reinsurers Outlook Distribution*
environment. On the other hand, the
(2%)
fundamental secular competitive trends Positive Negative
haven’t abated, even after back-to-back (10%) (2%)
Positive
record catastrophe years in 2017 and 2018. (10%)
Furthermore, the reinsurance
industry’s cost of capital (COC) has been
declining since the 2008 financial crisis,
and reached a floor at year-end 2016,
increasing in 2017 and 2018 due to rising
interest rates and the volatility stemming
from heavy catastrophe losses. However,
this rising trend has reversed course in
2019 because of central banks’ interest
rate cuts and their prospective dovish
monetary easing stance.
In addition, reinsurance pricing
has been hardening through the 2019
Stable
renewals, and reinsurers’ optimism for
(88%)
the upcoming renewals in 2020 should Stable
help the sector broadly earn its COC *As of Aug. 6, 2019. (88%)
in 2019 and 2020, assuming average Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
*As of Aug. 6, 2019.
catastrophe years. This expected
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
improvement in the sector’s return on
capital (ROC) relative to its COC is one also capitalize
Chart 4:on increasingly
Capital Adequacy frequent SoGlobal
Of The Top 20 far, Reinsurers
the reinsurance
By market
of the key factors behind our decision opportunities (see Chart
Confidence 3). During the has been somewhat insulated, but a
Level (2014-2018)
to maintain our stable outlook on the Chart
past couple of4:years,
Capital
theAdequacy Of The Top
rise of populism 20 Global
potential Reinsurers
recession ByU.S. within the
in the
80 Confidence Level (2014-2018)
global reinsurance sector, despite the in politics in the U.S. and Europe, the
2014 2016 2018 next 12 months (S&P Global Ratings’ U.S.
disappointing recent track record. trade70war between the2015
80 U.S. and
2017China, Chief Economist estimates recession
2014 2016 2018
and increased tensions in the Middle risk at 30%-35%) and these increasing
60
70 2015 2017
Reinsurers Face Ups And Downs, East with the U.S. re-imposing sanctions geopolitical risks could dampen global
Both Old And New 50 have heightened geopolitical GDP growth prospects and could
on Iran,
60
In its current state, the global reinsurance instability,
40 as has the U.K.’s ongoing Brexit ultimately curb reinsurers’ top line
50
industry battles many threats, but could negotiation with the European Union. growth.
30
40
(%) (%)
20
30 Global Reinsurance Highlights | 2019 11
10
208
(
6
20204 Reinsurance Sector Outlook
2
0
A- A A+ AA- AA AA+
*Financial strength rating on core operating subsidiaries as of Aug. 6, 2019.
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
Chart 3: Threats And Opportunities For The Global Reinsurance Sector investment portfolios while maintaining
Threats Opportunities sophisticated ERM programs.
The top 20 global reinsurers’ capital
EconomicChart 2: Top
conditions 40 Global Reinsurers Outlook Distribution*
and global
Hardening reinsurance pricing
geopolitical risks adequacy remained redundant by 5%
Negative
Lower-for-longer interest rates
Human capital and talent at the ‘AA’ confidence level in 2018—a
(2%) management
Positive slight decrease from 2017, despite
Climate change and catastrophe Alternative capital partnerships
risk (10%) improving competitive positions the catastrophe losses and the stock
Alternative capital threatening Technology investments, market volatility in fourth-quarter 2018
business models innovation, and insurtech
(see Chart 4). This cohort of reinsurers
The industry not meeting its Expense management and cost
cost of capital efficiencies lost their capital redundancy at the
Regulations increasing cost of New products and markets (ESG, ‘AAA’ confidence level in 2017 and
doing business cyber re, life re, mortgage re)
2018 because of the heavy catastrophe
Alignment of compensation among
stakeholders
Closing the protection gap losses, adjustments to the large global
reinsurers’ asset liability management
and/or longevity risk capital charges,
and continued buybacks and special
dividends. We believe capitalization will
remain a pillar of strength for the sector
in the next two years.
The sector’s operating performance
was subpar in the past two years as the
Stable
industry experienced major catastrophe
(88%)
losses. As a result, the top 20 reinsurers
*As of Aug. 6, 2019. generated underwriting losses in 2017 and
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 2018 with combined ratios of 109% and
Source: S&P Global Ratings
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. 101%, respectively (see Table 1). These
catastrophe losses hurt the combined
Chart 4: Capital Adequacy Of The Top 20 Global Reinsurers By ratios by 17 percentage points (pps) in
Confidence Level (2014-2018) 2017 and 9.4 pps in 2018, which also
included loss creep from earlier events
80 2014 such as Hurricanes Irma and Maria.
2016 2018
70 2015 2017 Reserve releases contributed about
five pps to the underwriting results in
60
the past two years at a declining rate
50 relative to the previous years, given that
the sector was in a soft pricing cycle. Our
40
expectation of lower reserve releases
30 prospectively relative to the past few
(%)
20 years hasn’t changed.
When we strip out the effects of
10
catastrophe losses and reserve releases,
0 accident-year combined ratios have
worsened during the past five years,
(10)
reflecting pricing pressure, albeit they
(20) leveled out in 2018. The 2019 renewals
AAA AA A BBB brought hardening reinsurance rates,
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved. with positive momentum heading into
2020. As a result, we forecast a slight
Capitalization Took A Hit Or Two, risk and long-tail reserve risk that improvement in profitability in 2019–
Chart 5: Reinsurers’ Weighted-Average Cost Of Capital And Return
But Remains A Pillar Of Strength reinsurers assume in their underwriting 2020, with an estimated combined ratio
On Capital (2005–2020)
The reinsurance sector benefits from operations, as it often serves as a of 95% to 98% and an ROE of 7% to
18 capitalization, which remains a
robust backstop forWACC
the primary insurance 9%. As interest rates are now declining,
10-year U.S. govt bonds
strength
16 for most reinsurers. This capital market. To cope with these risks, dashing hope for net investment yield
Return on capital
strength cushions the industry from global reinsurers tend to be strongly improvement, reinsurers need to sharpen
14
severity exposure, such as catastrophe capitalized with generally conservative their focus on disciplined underwriting as
12
12 Global Reinsurance Highlights | 2019
10
(%)
82020 Reinsurance Sector Outlook
Table 1: Top 20 Global Reinsurers’ Combined Ratio And ROE Performance
(%)
2014 2015 2016 2017 2018 2019F 2020F
Combined ratio 89.9 90.7 95.1 109.0 101.0 95-98 95-98
(Favorable)/unfavorable reserve developments (5.4) (6.5) (6.0) (4.6) (4.7) (4)-(5) (4)-(5)
Natural catastrophe losses impact on the combined ratio 3.1 2.8 5.7 17.0 9.4 8-10 8-10
Accident-year combined ratio excluding catastrophe losses and 92.2 94.5 95.4 96.5 96.3 91-93 91-93
reserve developments
Return on equity 12.5 10.4 8.4 1.6 2.9 7-9 7-9
F = Forecast. The top 20 global reinsurers are: Alleghany, Arch, Argo, Aspen, AXIS, China Re, Everest Re, Fairfax, Hannover Re, Hiscox,
Lancashire, Lloyd’s, Markel, Munich Re, PartnerRe, Qatar Ins., RenRe, SCOR, Sirius, and Swiss Re
net investment returns would not provide regions. So, the recent underperformance
the initially expected relief. “The fundamental secular of the property-catastrophe business
In first-half 2019, operating competitive trends in combination with lackluster
performance was strong, with combined haven’t abated, even after performance in other lines posed a threat
ratios in the mid-90s reflecting a to the reinsurance sector’s underwriting
back-to-back record
relatively benign natural catastrophe margins, overall profitability, and ability
period. However, Typhoon Jebi reserves catastrophe years in 2017 to earn its COC, thus forcing reinsurers’
continue to develop unfavorably: industry- and 2018.” hand to push for price increases.
estimated insured losses more than Reinsurers’ pricing assumptions
doubled and reached about $15 billion. were challenged by the loss creep from
During the same period, stock Hurricane Irma because of assignment
portfolios strongly recovered from the Moreover, retrocession covers of benefits issues and demand surge,
December 2018 correction. Bond yields will continue to command significant significant increase in loss estimates
reversed, resulting in bond portfolios’ rate increases in the double-digits. from Hurricane Michael and Typhoon
unrealized capital gains boosting Higher retrocession rates and firming Jebi, and hits from California wildfires
capitalization. With the recovery in the reinsurance pricing trends will gradually two years in a row and other secondary
capital markets, reinsurers’ stocks are emerge through the entire re/insurance perils. Therefore, reinsurers’ models
trading at a premium at about 1.25x book value chain, evidence of which we’re generally should be highlighting higher
value, reflecting the improving reinsurance observing already. Furthermore, we technical pricing indications for similar
pricing environment and potential future believe the rate increases will be exposures.
mergers and acquisitions (M&A) activity. broad-based, especially in the U.S., Furthermore, with alternative capital
with most business lines experiencing smarting from 2017–2018 losses,
Reinsurance Pricing Is Gaining rate increases. Another trend that will its availability has been somewhat
Momentum benefit reinsurers is the pass-through of constrained because of its cautious
After modest reinsurance rate increases primary insurance rate increases through stance and because a portion of the
at the start of 2019, characterized proportional business. collateralized capital was lost or trapped.
by the regionalization of reinsurance The increase in primary rates, This is also causing retrocession and
pricing, the positive trends picked up which can be characterized as a hard aggregate covers supply to be limited,
steam throughout the year, with larger market, especially in the U.S. excess resulting in double-digit increases for
rate increases during midyear renewals and surplus lines of business, is helped a few quarters now. As a result of these
with tightening terms and conditions. by underwriting actions by Lloyd’s and factors, we believe the supply-demand
We expect this momentum to continue, American International Group Inc. among equation remains balanced at this stage.
signaling a move toward desired risk- other players, as well as by insurers
adjusted pricing. However, we don’t pushing for rate increases in response to The Industry Didn’t Earn Its COC In
characterize the current reinsurance higher loss experiences. 2017–2018, But 2019–2020 Looks
pricing environment as a hard market, What underlies our prognosis? For More Promising
but a firming one, with expected global many years, global reinsurers relied on In 2018, the reinsurance sector generated
aggregate rate increases up to mid-single the profitability of the U.S. property- an ROC of only 3.0%. At 4.6% below
digits over the next 12 months, assuming catastrophe market to subsidize other its 7.6% COC (defined as the weighted
an average catastrophe year. underperforming lines of business and average cost of capital), this represented
Global Reinsurance Highlights | 2019 1330
(%
20
20
10
10
0
2020 Reinsurance Sector Outlook 0
(10)
(10)
(20)
(20) AAA AA A BBB
AAA AA A BBB
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
Chart 5: Reinsurers’ Weighted-Average Cost Of Capital And Return
the second consecutive year of subpar On Capital
Chart (2005–2020)
5: Reinsurers’ Weighted-Average Cost Of Capital And Return
returns for the global reinsurance sector 18 On Capital (2005–2020) WACC
(see Chart 5). The impact of loss creep 18 10-year U.S. govt bonds
WACC
from the 2017 natural catastrophes, 16 Return on capital
10-year U.S. govt bonds
2018 catastrophe losses, and investment 16 Return on capital
14
market volatility in fourth-quarter 2018, 14
12
all played a part in this result.
12
The improved investment climate 10
in first-half 2019, combined with the 10
(%)(%)
8
most benign first half-year for natural
8
catastrophe losses since 2006, according 6
to Aon PLC, has helped improve the year- 6
4
to-date 2019 returns. This has meant 4
that the gap between the sector’s actual 2
ROC and COC shrunk to negative 2.7% 2
0
as of March 31, 2019, compared with 0
F F
F F
05 05
06 06
07 07
08 08
09 09
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
20 2108 18
Q1 Q1
19 19
20 20
negative 4.6% at the end of 2018, and
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
19 19
20 20
20 20
is likely to have further improved at the
half-year mark. In addition to improved F:Forecasts. Source: S&P Global Ratings, Bloomberg. WACC: Weighted average cost of capital
earnings in first-half 2019, the below- Copyright © 2019
F:Forecasts. by Standard
Source: & Poor's
S&P Global Financial
Ratings, Services
Bloomberg. WACC:LLC. All rights
Weighted reserved.
average cost of capital
average catastrophe losses year-to-date Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
and the reemergence of lower-for-longer
interest rate environment have exerted Chart 6: Global Reinsurance Capital
downward pressure on the sector’s COC. Chart 6: Global Reinsurance Capital
Traditional capital 595 605 605
Furthermore, as 2019 rate increases 575 585
Alternative
Traditional capital 565 605 605
540 595 585
are booked, and earned, through income Global reinsurance
575 565
Alternative capital capital 505 540
statements over the upcoming quarters, 470
Global reinsurance capital 455 505
this should further improve the picture. 470
410 400 455
Indeed, assuming a normal catastrophe 385
410 400
$) $)
load of about 8 to 10 pps on the combined 385 340
(Bil.(Bil.
340 514 516 488 512
ratio, we forecast that reinsurers’ returns 511 493
for 2019 and 2020 will broadly cover 490 514 516 488 512
461 511 493
their COC. Specifically, we forecast the 447 428 490
388 378 461
368 447 428
reinsurance sector’s ROC will be between 321
388 378
6% and 8% compared with its COC 368
321 97 93
81 89
between 6.5% and 7.5% in each of 2019 64 72
44 50 89 97 93
22 19 22 24 28 72 81
and 2020. 17 50
64
28 44
The anticipated improvement in the 17 22 19 22 24
19 19
06 06
07 07
08 08
09 09
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
industry’s ROC relative to its COC is one
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
20 20
of the key factors that led us to keep our
Q1 Q1
stable outlook on the global reinsurance Source: Aon Securities Inc.
sector. Copyright © Securities
Source: Aon 2019 by Standard
Inc. & Poor's Financial Services LLC. All rights reserved.
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
Alternative Capital Growth 30% of the insured losses from the 2017 includes about $15 billion of collateral
Recently Paused, But Its Influx Will North Atlantic hurricane season. still trapped because of recent natural
Chart 7: Top Global Life Reinsurers Average Return On Equity
Likely Resume Based on Aon, alternative capital catastrophe events.
Alternative capital, which includes 16 Chart
declined
7: Top Global Life Reinsurers Average Return On Equity
4% or $4 billion to $93 billion This has caused a flight to quality, as
collateralized reinsurance funds, 16
in first-quarter 2019 relative to year-end investors have become more selective
14
insurance-linked securities (ILS), 2019. The decline was mostly caused and 13.6 have shifted their attention to well-
14
sidecars, and industry loss warranties, has 12
by dismal returns 13.6
in the past couple of established sponsors/managers with a
11.2
become an integral part of the property- 12
years, loss payments, and loss creep better track record 10.0simultaneously
while 10.0
11.2 10.3
10 10.0
catastrophe market. According to Swiss from earlier events, exacerbated 10.3 by asking for higher returns. Indeed,10.0 in
10 9.0
Re latest estimates, it represented about governance
8 issues at certain funds, which December 2018, Bermuda-based
(%)(%)
9.0
25% of total property-catastrophe risk triggered
8 investors’ redemptions. The RenaissanceRe Holdings Ltd. (RenRe)
6
supply in 2018 and accounted for 25% to $93 billion
5.7of assets under management and Dutch pension fund manager
6
4 5.7
14 Global Reinsurance Highlights | 2019 4
2
22020 Reinsurance Sector Outlook
PGGM announced the creation of a A well-executed deal can enhance the
Class 3B Bermudian reinsurer, Vermeer “We don’t characterize the consolidated entities’ creditworthiness
Reinsurance Ltd., to provide capacity current reinsurance pricing and improve their shareholders’ value.
focused on risk remote layers in the U.S. environment as a hard Unfortunately, the industry doesn’t have
property-catastrophe market. a stellar track record when it comes
market, but a firming one.”
Vermeer was initially capitalized with to M&A deals, as they inherently come
$600 million of equity from PGGM, with with elevated execution risk, cultural
up to a further $400 million available to clash, overpromising cost synergies, and
pursue growth opportunities in 2019, for overlapping businesses. However, there
a total of $1 billion of capital. Moreover, are a few success stories.
RenRe raised an additional $700 million
in third-party capital in June 2019 in returns due to cost inefficiency, margin Life Reinsurance Provides A Calm
its various ventures including DaVinci, pressure, and still-excess reinsurance Harbor In A Volatile P/C World
Vermeer, Upsilon, and Medici. capacity. Furthermore, organic growth While business conditions have been
Earlier this year, the giant fixed- opportunities are somewhat limited and challenging for P/C reinsurance, life
income manager PIMCO entered the the fact that some cedants prefer to deal reinsurance has had a relatively strong
ILS market. In May 2019, SCOR SE with fewer and larger global reinsurers is performance, offsetting some of the
announced its acquisition of Coriolis further increasing the pressure on small property-catastrophe volatility generated
Capital Ltd., an ILS fund manager players with less diversified product in the past couple of years for those
expanding its ILS capacity to $2.1 offerings and dragged by higher cost reinsurers with meaningful life reinsurance
billion. In June 2019, White Mountains structures. In particular, those players exposure. In fact, in the past two years,
Insurance Group Ltd. acquired a minority with narrower business profiles and a the life reinsurance segment contributed
interest stake in Elementum Advisors limited geographic footprint will likely materially to these groups’ bottom lines.
LLC with over $4 billion of assets under either consider M&A or become targets The global life reinsurance industry
management. Lastly, in July 2019, themselves. has well-developed underwriting
Markel Corp. announced the creation It seems that the acquisition of expertise that enables it to perform well.
of its new retrocessional ILS fund alternative capital managers is also Access to global exposure and key data
platform, complementing its Nephila heating up as alternative capital has for underwriting allow global players
Capital Ltd. acquired in 2018, while grown in importance, following the motto: to develop and maintain longstanding,
placing its wounded CATCo Investment “if you can’t beat them, join them”. In trusting relationships with primary life
Management Ltd. into run-off. recognition, reinsurers and some primary insurers. Therefore, they experience less
This recent high activity highlights insurers have built their alternative margin compression relative to capacity-
that alternative capital is still vibrant capital strategies to harness this capital driven P/C reinsurers.
(see chart 6) and that long-term investors either through building from scratch or We believe that life reinsurance’s
have enjoyed good uncorrelated returns through acquisitions. Overall, we foresee business conditions will remain sound
over a longer time. It also highlights further convergence in the insurance, during the next two years with a strong
that there’s increasing alignment reinsurance, and ILS markets in the next ROE of 10% in 2019–2020. However, some
between the reinsurance sector and few years as structural changes in the earnings volatility could occur if material
alternative capital. In addition, the industry continue to place pressure on changes in key actuarial assumptions
case for investing in insurance risk for reinsurers, especially considering that for calculating premium rates (that is,
diversification purposes in a low interest capital is still relatively cheap. mortality, morbidity, and longevity) were
rate environment remains valid. As a From a credit perspective, we to occur. For example, in 2012–2014,
result, we believe alternative capital tend to view M&A transactions most reinsurers with exposure to the
backed by long-term investors remains slightly negatively at the outset, Australian disability business were facing
committed to property-catastrophe risk given the associated execution risk. adverse developments, and the industry
and is here to stay. We expect, once the Establishing clear execution objectives suffered a loss of about $1 billion.
recent bumps are smoothed over and the is vital for a successful M&A transaction. We estimated that the life reinsurance
recent losses are fully digested, growth Consolidation could create growth sector’s ROE slightly declined to about 9%
will resume. opportunities through combined in 2018, from 13.6% in 2017 (see Chart 7).
platforms, a stronger competitive However, in 2017 the sector benefitted
Mergers And Acquisitions Remain position in chosen products and regions, from significant tax gains from the U.S.
In Vogue increased diversification benefits, and tax reform. Excluding this exceptional
Mergers and acquisitions remain a potential expense synergies that could effect, we estimated the sector’s ROE
hot topic for the reinsurance sector, improve earnings and strengthen the would have been 10.2% in 2017. The
as some players are posting subpar financial profile. moderate decline in ROE in 2018 reflects
Global Reinsurance Highlights | 2019 15368 378
321
89 97 93
64 72 81
44 50
22 19 22 24 28
17
2020 Reinsurance Sector Outlook
19
06
07
08
09
10
11
12
13
14
15
16
17
18
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Q1
Source: Aon Securities Inc.
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
some volatility in U.S. mortality business Chart 7: Top Global Life Reinsurers Average Return On Equity
and a decline in investment results 16
underscoring the potential volatility the
sector is exposed to. 14
13.6
Life reinsurance benefits from high
12
barriers to entry on a global basis 11.2
10.0 10.0
10.3
because of large market shares of a 10
few competitors. It would be difficult 9.0
8
(%)
for new entrants to quickly enter the
market, reach critical mass, build 6
sustainable customer relationships, 5.7
and establish underwriting expertise. 4
Such a scale of competitive advantage
2
would be difficult to replicate in the
short-to-medium term. 0
Nevertheless, the market doesn’t 2014 2015 2016 2017 2018 2019F 2020F
stand still, and during the past few years F=Forecast. S&P Global Ratings' estimated figures based on the life reinsurance
book of the following companies:
the industry saw some M&A activity
Swiss Re, Munich Re, Hannover Re, SCOR, China Re, RGA, Korean Re, and Taiping Re.
and even the emergence of alternative Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
capital (see Table 2). One recent
example is Langhorne Reinsurance
(Bermuda) Ltd., a reinsurer sponsored Table 2: Top 10 Life Reinsurers Ranked By 2018 Gross Premiums Written
by two major players, Reinsurance
2018 2017
Group of America Inc. and RenRe. In
2017, PartnerRe Ltd. acquired Aurigen FSR*/Outlook (Bil. $) Change (%)
Capital Ltd., signaling its growth focus Swiss Re AA-/Stable 14.53 13.31 9.1
for this business line and boosting its
Munich Re AA-/Stable 12.44 16.47 (24.4)
premiums by about 20%.
We don’t believe that sizable M&A Reinsurance Group of America AA-/Stable 11.40 10.70 6.5
transactions are likely to change the
SCOR AA-/Stable 10.42 10.52 (0.9)
global life reinsurers competitive
landscape, owing to a lack of large Hannover Re AA-/Stable 8.26 8.49 (2.8)
targets. Yet, small-to-midsize portfolio China Re A/Stable 7.63 6.81 12.0
transfers remain likely. North America
Berkshire Hathaway Re AA+/Stable 5.45 4.85 12.4
continues to be the sector’s bread and
butter business, with stable and slightly PartnerRe A+/Stable 1.24 0.98 25.6
increasing cession rates in the past few
Korean Re A/Stable 1.18 1.06 10.8
years.
The U.K. longevity reinsurance market Taiping Re A/Stable 0.60 0.55 9.6
doesn’t show any signs of slowing. Top 10 global life reinsurance total GPW 73.14 73.75 (0.8)
However, more promising growth
prospects will continue to emanate from *FSR: Financial strength rating as of Aug. 6, 2019.
Asia as the region develops its primary life
insurance markets. Indeed, Asia-based catastrophe space, the events of the past adequate pricing, prudent reserving, and
life reinsurers such as China Re, Taiping two years have shifted the sentiment, tight exposure management.
Re, and Korean Re have generated placing reinsurers in a slightly better It appears that the alternative capital
stronger growth rates than their global position. Reinsurers are finally gaining sector is adopting these lessons, as the
competitors in recent years, highlighting on pricing, and terms and conditions, capacity within that market looks to
that Asia is the next frontier for growth. with the capital demand-supply reassess and align behind strong risk
equation fairly balanced. 2017’s and managers. As a result, we’re now observing
Is The Pricing Momentum Masking 2018’s catastrophes jogged reinsurers’ a higher degree of cautiousness within
The Sector Secular Headwinds? memories, sending a reminder that there both the insurance (at least in the U.S.)
After years of reinsurers battling pricing are inherent uncertainties in the nature and the global reinsurance sectors. This
declines and losing ground to alternative of this business and that there are no sentiment will help continue the positive
capital at least within the property- substitutes for underwriting discipline, rate momentum heading into 2020.
16 Global Reinsurance Highlights | 20192020 Reinsurance Sector Outlook
Although the current environment
gives reinsurers some breathing room,
the underlying factors spurring secular
changes within the sector remain intact.
Despite the losses and disciplined stance,
there isn’t a scarcity of capacity—neither
of traditional nor of alternative capital.
Product commoditization will
advance, especially within the property-
catastrophe market, centralization and
optimization of reinsurance purchasing
will continue, consolidation of brokers
will further entrench the intermediaries,
and growth opportunities remain limited
except for a few pockets. Despite M&A
activity in the past few years, the global
P/C reinsurance market remains very
fragmented and highly competitive.
S&P Global Ratings believes that
these factors will continue to push
the sector to evolve, forcing market
consolidation, product and service
innovation, expansion of product
offerings, and reimagining of the re/
insurance value chain. Indeed the market
may look different, but it could be a long
time before the competitive landscape
changes. For now, reinsurers are
optimistic about the pricing environment,
but a long road to ensure continued
relevance lies ahead. n
This report does not constitute a rating
action.
Taoufik Gharib
New York, (1) 212-438-7253
taoufik.gharib@spglobal.com
Johannes Bender
Frankfurt, (49) 69-33-999-196
johannes.bender@spglobal.com
Hardeep Manku
Toronto, (1) 416-507-2547
hardeep.manku@spglobal.com
David Masters
London, (44) 20-7176-7047
david.masters@spglobal.com
Ali Karakuyu
London, (44) 20-7176-7301
ali.karakuyu@spglobal.com
Global Reinsurance Highlights | 2019 17Catastrophe Risk
Global Reinsurers Aim To Rebalance
Their Natural Catastrophe Exposure
By Charles-Marie Delpuech and Johannes Bender
Global reinsurers’ very strong capital adequacy continues to provide the industry with a cushion
against catastrophe risk exposure, despite insured losses from natural catastrophes being the
highest on record in 2017, and fourth-highest on record in 2018, according to Swiss Re’s Sigma.
Shutterstock / Trong Nguyen
18 Global Reinsurance Highlights | 2019Catastrophe Risk
Chart 1: 2018 Catastrophe Losses Were Below The
1-In-10-Year Level
T
he magnitude of the 2018 losses— 1,000Chart 1: 2018 Catastrophe Losses Were Below The
about 50% higher than reinsurers 1-In-10-Year Level
would expect in an average year— 1,000
also helped push up prices at the 2019
April and June/July renewals. Property 100
Return period in year (log scale)
Natural catastrophe net
catastrophe rates increased by 15% to exposure estimate
25% on loss-affected accounts. 100 2011
Return period in year (log scale)
Actual annual
Natural aggregate
catastrophe net
S&P Global Ratings has noted that 2017 net catastrophe
exposure estimateloss
(restated for premium
reinsurers’ strategic reaction to the price 10
2011
growth)
Actual annual aggregate
uptick, amid heightened catastrophe 2017 net catastrophe loss
2018 2010 Annual expected net
(restated for premium
activities, has diverged. Most of the top 10 loss
growth)
2016 2012
20 reinsurers chose to increase their 2018 2010
2014 2013 Annual expected net
exposure relative to capital, to benefit 2015
2016 2012
loss
1
from the slightly improved conditions. 0
2014 10 20 30 40 50 60 70 80
2013
A few stuck with defensive measures, 1 2015 Modeled net loss (bil. $)
allowing their exposure to contract 0Source: S&P
10 Global 20 30
Ratings estimates for40
the top 2050 60
global reinsurers. 70 80
further, as they had in 2018. Modeled
Copyright © 2019 by Standard & Poor'snet loss (bil.Services
Financial $) LLC. All rights reserved.
On average, reinsurers’ property- Source: S&P Global Ratings estimates for the top 20 global reinsurers.
catastrophe risk appetite at a 1-in-250-year Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
return period rose to 29% of shareholder
Chart 2: The Top 20 Global Reinsurers Typically Take 20%
equity, but some reinsurers saw reductions
Of Total Industry Losses
of more than five percentage points. Chart 2: The Top 20 Global Reinsurers Typically Take 20%
Meanwhile, alternative capital 34
35 Of Total Industry LossesTop 20 loss market share 35
growth seems to have paused, at least Actual annual aggregate net
30 34 catastrophe
Top loss (restated
20 loss market share for 28 30
temporarily. This did not materially shift 35 35
premium growth)
reinsurer’s retrocession strategies. Actual annual aggregate net
Top 20 Top
25
30 catastrophe loss (restated for 28 25
30
$) (mil. $)
premium growth)
loss20
20
25 20
25
“Although global reinsurers’
loss
16
(mil.
15
market
have maintained their
lossnet
loss market
15
20 12 15
20
underwriting discipline, we 16
Actual
9 15
share (%)
Actual net
10 10
expect earnings volatility 15 12 8 15
5 5
could be higher than 105
9
5
10
share (%)
8
historically observed, where 5 5
50 50
exposure has increased.” 2010 2011 2012 2013 2014 2015 2016 2017 2018
0 Source: Swiss Re Sigma, S&P Global Ratings. 0
Copyright
2010 © 2019 by
2011 Standard
2012 & Poor's
2013 Financial
2014 2015Services
2016LLC. All
2017rights reserved.
2018
Source: Swiss Re Sigma, S&P Global Ratings.
Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
Table 1: Top 20 Global Reinsurers The 1-In-40-Year Level
Chart 3: Aggregate Net Losses From Typhoon Jebi Are Beyond
Group 1: Large global reinsurers Group 100
2: Midsize global reinsurers Group 3: Other re/insurance group
The 1-In-40-Year Level
90
Hannover Rück SE Alleghany Corp. Arch Capital Group Ltd.
100
80
(years) (years)
Lloyd’s AXIS Capital
90 Holdings Ltd. Argo Group International Holdings Ltd.
70
Munich Reinsurance Co. Everest80
Re
60 Group Ltd. Aspen Insurance Holdings Ltd.
return periods
70
50
SCOR SE Fairfax Financial Holdings Ltd. China Reinsurance (Group) Corp.
return periods
60
40
Swiss Reinsurance Co. Ltd. PartnerRe
50 Ltd. Hiscox Insurance Co. Ltd.
30
Estimated
40
RenaissanceRe Holdings Ltd. Lancashire Holdings Ltd.
20
30
10
Markel Corp.
Estimated
20
0
10 Qatar Insurance Co. S.A.Q.
su 1ins 11
10
12
13
1
2
r3
5
6
7
8
r9
r4
er
er
er
er
er
er
re
e
re
er
er
er
er
r
r
ur
ur
ur
ur
ur
su
su
su
0
su
ur
ur
ur
ur
Sirius International Group Ltd.
ns
s
ns
ns
ns
ns
in
in
in
in
in
ns
ns
ei
ei
ei
ei
Re
1Re
2Re
5Re
R3 e
0ei
9ei
2ei
r 4R
r 6R
r 7R
r 8R
e
3
r 1R
R
r 1R
r R1
r1
er
er
er
er
r
re
re
re
re
re
re
r
r
ur
r
re
re
re
Source: S&P Global Ratings.
su
su
su
su
su
su
su
su
su
su
su
ns
in
in
in
in
in
in
in
in
in
in
in
in
i
Re
Re
Re
Re
Re
Re
Re
Re
Re
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights
Global Reinsurance reserved. | 2019 19
Highlights
Re
Re
Re
Re
Source: S&P Global Ratings.
Chart ©
Copyright 4:2019
LossbyEstimates In 2017
Standard & Poor's Showed
Financial Significant
Services Disparities
LLC. All rights reserved.p0loss
(m
(mil.
20
20 20
(
loss
20 20
loss
loss
16
loss
20 16 15 20
market
loss
15
market
16
net
15 15
netnet
15
market
15 12
12 15
Actual
15 15
Actual
12
Catastrophe Risk 99
share
share
Actual
10
10 88 9 10
10
share
10 8 55 10
55
(%)
(%)
55 5 5 55
(%)
5 5
00 00
0 2010
2010 2011
2011 2012
2012 2013
2013 2014
2014 2015
2015 2016
2016 2017
2017 2018
2018 0
2010
Source: 2011 Sigma,
2012 2013 Ratings.
2014 2015 2016 2017 2018
Source: Swiss
Swiss Re
Re Sigma, S&P
S&P Global
Global Ratings.
Copyright
Source: ©
© 2019
Swiss
Copyright by
by Standard
Re Sigma,
2019 &
& Poor's
S&P Global
Standard Financial
Financial Services
Ratings.
Poor's Services LLC.
LLC. All
All rights
rights reserved.
reserved.
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
Chart
Chart 3:
3: Aggregate
Aggregate Net
Net Losses
Losses From
From Typhoon
Typhoon Jebi
Jebi Are
Are Beyond
Beyond
“On average, reinsurers’ Chart
The 3: AggregateLevel
The 1-In-40-Year
1-In-40-Year Net Losses From Typhoon Jebi Are Beyond
Level
property-catastrophe risk The 1-In-40-Year Level
100
100
appetite at a 1-in-250- 100
90
90
year return period rose to 90
80
(years)
80
(years)
29% of shareholder equity, 80
(years)
70
70
but some reinsurers saw 70
periods
60
periods
60
periods
reductions of more than 5 60
50
50
50
percentage points.”
return
40
return
40
return
40
30
30
Estimated
30
Estimated
20
20
Estimated
20
10
10
10
00
0
in einin 11 1111
in einin 0 10 0
in einin 12 1212
3 13 3
in einin 1 1 1
in einin 2 2 2
in einin 3 3 3
in einin 5 5 5
in einin 6 6 6
in einin 7 7 7
in inin 8 8 8
in einin r 9 r 9r 9
in einin 4 4 4
Re RRe er r1erer 1
r1 rr1
Re RRe er rerer
Re RRe er rerer
Re RRe er rerer
Re RRe er rerer
Re RRe er rerer
Re RRe er rerer
Re RRe er rerer
Re RRe er rerer
Re RRe reurere
Re RRe er rerer
Re RRe er rerer
ru r
ru r
ru r
ru r
ru r
ru r
ru r
reurere
ru r
su s su
su s su
su s su
su s su
su s su
su s su
su s su
su s su
su s su
ru r
ru r
ru r
The top 20 global reinsurers, which
su s su
su s su
su s su
su s su
in einin
Re RRe
e
are listed in Table 1, picked up about
Source:
Source: S&P
S&P Global
Global Ratings.
Ratings.
20% of the total insured industry losses
Copyright
Copyright © 2019 by
Source: ©
S&P 2019
Global Standard
Standard &
byRatings. & Poor's
Poor's Financial
Financial Services
Services LLC.
LLC. All
All rights
rights reserved.
reserved.
in 2018. We estimate aggregate losses Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
in 2018 represent a level seen less than Chart
Chart 4:
4: Loss
Loss Estimates
Estimates In
In 2017
2017 Showed
Showed Significant
Significant Disparities
Disparities
once in every 10 years (a 1-in-10-year Chart
From 4:
TheLoss Estimates
Average
From The Average In 2017 Showed Significant Disparities
Average Min
Average Min Max
incurred)
40 From The Average
40
2018
Max
incurred)
loss) for the peer group. In aggregate, this
2018
Average Min Max
incurred)
40
2018
peer group has budgeted catastrophe 30
30
year-end
atyear-end
30
20
losses in 2019 of about $11 billion, or
year-end
net
20
netnet
20
seven percentage points of the combined 10
2017
10
2017
10
2017
(loss and expense) ratio. At this level,
at at
00
development
year-end
development
ofyear-end
we forecast that this group would report 0
(10)
development
year-end
(10)
pretax profits of about $22 billion in 2019, (10)
(20)
(20)
reflecting a consolidated buffer of about (20)
of of
(30)
(30)
percentage
$33 billion before capital would be hit
incurred
percentage
(30)
incurred
(40)
percentage
(40)
incurred
in a severe natural catastrophe stress (40)
(50)
(50)
scenario (see Charts 1 and 2).
Net
(50)
Net
(60)
(as
Although global reinsurers’ have (60)
(as(as
Net
(60) Hurricane
Hurricane Harvey
Harvey Hurricane
Hurricane Irma
Irma Hurricane
Hurricane Maria
Maria California
California Wildfires
Wildfires
maintained their underwriting discipline, (August
(August 2017)
Hurricane Harvey (September
2017) 2017)
2017) (September
Hurricane Irma
(September 2017)
Hurricane Maria
(September (2017)
2017) California Wildfires
(2017)
we expect earnings volatility could be (August 2017) (September 2017) (September 2017) (2017)
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2019 by
by Standard
Standard && Poor's
Poor's Financial
Financial Services
Services LLC.
LLC. All
All rights
rights reserved.
reserved.
higher than historically observed, where Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
exposure has increased. The 2018 Chart
Chart 5:
5: Large
Large Reinsurers
Reinsurers Allow
Allow More
More Of
Of Their
Their Earnings
Earnings
natural catastrophe losses were 50% Chart
And 5: Large
Capital To Reinsurers
Be At Risk
And Capital To Be At Risk Allow More Of Their Earnings
above the reinsurers’ budgeted level, And Capital To Be At Risk
1.4 Individual
Individual reinsurer
(x)
1.4
versus
reinsurer
(x)(x)
versus
but slightly below the modeled annual 1.4
loss
Individual reinsurer
versus
loss
Peer
Peer group
group
1.2
loss
loss expectation of $86 billion for the 1.2 Peer group
catastrophe
loss
catastrophe
loss
1.2
insurance industry reported by AIR
catastrophe
loss
1.0
catastrophe
1.0
catastrophe
Worldwide. We note that relative loss 1.0
catastrophe
magnitude was closely aligned with the 0.8
0.8 Large
Large global
excluding
Other global
excluding
exposure riskiness ranking we developed 0.8 Other reinsurers
reinsurers reinsurers
Large global
excluding
0.6 reinsurers
Other
net
for the top 20 global reinsurers. 0.6 reinsurers
netnet
reinsurers
0.6 Midsize
Midsize global
global
1-in-10-year
The sector remains resilient to extreme reinsurers
1-in-10-year
PBT
0.4 reinsurers
Midsize global
PBT
0.4
1-in-10-year
events, but we expect a larger industry loss reinsurers
PBT
0.4
expected
expected
would hit more reinsurers. If a 1-in-100- 0.2
0.2
expected
year event hits, causing losses well in 0.2
0.0
0.0
excess of $200 billion across the insurance 0.0 00 10 20 30 40 50 60 70 80 90
10 20 30 40 50 60 70 80 90
industry, we expect only 12 of the 20 global 0
1-in-250 10
year net 20
catastrophe30loss relative
40 to reported
50 60
shareholders' 70
equity (%)80 90
1-in-250 year net catastrophe loss relative to reported shareholders' equity (%)
reinsurers would maintain their current 1-in-250
As year2019.
net catastrophe loss relative to reported shareholders' equity (%)
As of
of Jan.
Jan. 1,
1, 2019. PBT:
PBT: Profit
Profit before
before tax.
tax. Source:
Source: S&P
S&P Global
Global Ratings.
Ratings.
S&P Global Ratings capital adequacy level, As of Jan. ©
Copyright 1, 2019. PBT: Profit before tax.Financial
Source: S&P Global Ratings.
Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights
2019 by Standard & Poor's Services LLC. All rights reserved.
reserved.
as measured by our model. Copyright © 2019 by Standard & Poor's Financial Services LLC. All rights reserved.
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