Premium rates decline to persist in global insurance market — Fitch

… As M&A scaled back in 2016

Stories by Rosemary Onuoha

Fitch Rating has set a negative forecast for the year ahead in its 2017 insurance industry outlook report, predicting a continued decline of premium rates, with soft pricing prevailing in the global reinsurance market.

The soft pricing, according to the report, is driven by a continued over demand of capital, sluggish reinsurance purchasing, and several years of below-average catastrophe claims, despite last year seeing catastrophe losses reach their highest level since 2012.

Profitability is predicted to be weakened, with combined ratios expected to deteriorate down to 92 per cent from 91.5 per cent in 2016 as premium rates and investment yields decline, but the agency believes most reinsurers are expected to maintain credit metrics and ratings despite the challenges.

“Most ratings therefore have stable outlooks. Some smaller reinsurers with limited business diversification could face negative rating actions if prices drop much further, particularly as pricing has already fallen close to the cost of capital,” said Fitch Ratings.

Increased share buy-backs, special dividends and M&A (Mergers & Acquisitions) activities are on the cards for the year ahead, as soft market conditions make organic growth increasingly challenging, and Fitch Ratings noted that the trend of share repurchases would continue.

Meanwhile, M&As related to global insurance showed signs of retreat across all sectors in 2016, a new study by investment manager, Conning, suggests.

In 2016, 165 insurer transactions with aggregate value of $33 billion were monitored by Conning globally. The activities last year were well below that of 2015, according to Alan Dobbins, director of the Insurance Research at Conning.

He explained that many companies were looking more inward that year, adding that while the property-casualty sector registered strong M&A activity as part of the offensive strategies of competitors, the life insurance sector retracted significantly. The life sector fell to just a quarter of its recorded activity in 2015.

Titled as the ‘Global Insurer Mergers & Acquisitions: Activity Slows, but Pressures Remain,’ the study monitors and analyses both US and non-US insurers’ M&A activity in various sectors.

The study noted that Japanese investors continued their pursuit of established global underwriting brands.

 

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