20 European largest insurers buy more reinsurance, retain less risk

THE 20 largest European cedents are still taking advantage of the soft market by buying more reinsurance and retaining less risk, according to a new report by AM Best, an international insurance rating agency based in United Kingdom.

The rating agency said the pace at which retention ratios are falling has been more subdued, and it expects the declines in retention ratios to be less significant in 2016 and 2017 than those experienced in 2015.

Overall retention ratios for the 20 largest European cedents fell from 88.1% to 86.7% in 2015. Based on interim data available for 15 of the 20 largest cedents, the retention ratio stood at 86.2% in the first half of 2015, but this slipped to 85.8% as at first-half 2016.

AM Best notes higher cession levels have been driven by a diverse range of factors, including regulatory demands under Solvency II and the need to support product diversification, including new lines of business.

In 2015, total non-life premiums ceded for the 20 largest European cedents rose by 17.9 percent to €44.2bn, while gross premiums written increased during this period by just 6.2 percent to €333.3bn. For the 15 companies for which data was available, demand for reinsurance continued in the first half of 2016 but was not as pronounced: premiums ceded increased by 3.0 percent to €21.9bn, while gross premiums written decreased by 1.3 percent to €154.1bn.

Carlos Wong-Fupuy, senior director, AM Best, said: “Some of the largest insurers have increased their reinsurance purchasing as they take advantage of the soft rate environment and optimise the efficiency of their own capital. The need to protect capital and make it more efficient has become even more important following the implementation of Solvency II in 2016.

The European directive imposes significant capital charges for insurers retaining particular products involving significant claims uncertainty and volatility, especially in the long term.

Purchasing reinsurance protection such as stop loss or adverse development cover on reserves can be an efficient mechanism for reducing capital requirements.”

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