Reinsurance sector no longer earning its cost of equity
Monday, 01 11 2016, Category: Insurance and Reinsurance, Country: World
The reinsurance sector in 2016 has now seen pricing fall so far that it is no longer earning its cost of equity, according to analysts from Bernstein. But at the same time, the analysts believe further softening is ahead, as “Earnings are not yet painful enough.”
The January 2016 reinsurance renewals saw pricing fall faster than perhaps expected, in some lines of business, particularly specialty risks and casualty, while what was the core softener, U.S. property catastrophe reinsurance, saw rates hold up perhaps better than expected.
However the overall effect on the reinsurance sector, over the last few years of a softening market, is that the return on equity of the market has declined steeply and analysts at Bernstein led by Thomas Seidl and Josh Stirling, believe that it has now tumbled so far that earning sufficient underwriting returns to cover reinsurers cost-of-capital is at risk.