S&P warns on reinsurers protecting profits through reserve releases
Monday, 08 24 2015, Category: Insurance and Reinsurance, Country: World
In the current soft reinsurance market environment, some reinsurers have been relying on prudent reserving and timely releases of capital to protect or enhance their profits. But with major losses remaining absent from the market, dwindling reserves could come back to bite.
Rating agency Standard & Poor’s warns today that reinsurers who have either not been reserving prudently enough, or who have been releasing reserves to mask lower profit performance in the soft market, may be companies to watch for sudden dips in performance.
The competition levels in the property and casualty reinsurance market are fierce and have been so for some years now, S&P notes, adding that there is currently no sign of this trend reversing as excess capital and low losses remain a feature of the market.
Additionally the abundance of third-party and alternative reinsurance capital, largely from ILS funds and other institutional investors, is exacerbating the pressure on P&C reinsurance companies.
All of this pressure from capital, competition and the impact of low losses has resulted in a difficult market, where “margins have become tight enough to strain reinsurers’ ability to maintain their market positions while remaining profitable” S&P explains.