Stocks for publicly traded reinsurance companies (including the four large European ones) performed well below the overall market through Q3 of 2014, according to a report by A.M. Best.
The ratings agency has stated that this was driven in part by the increased volatility in the overall equity markets and amplified by continued concerns over the increasing competitive pressures on reinsurance pricing, terms and conditions.
Of the 20 publicly traded reinsurers examined by A.M. Best, just one stock performed better than the overall market and only 10 stocks have trended in positive territory so far in 2014.
Overall, average stock returns this year are flat compared with year-end 2013 and the market’s total return of 6.7 percent for the same period.
Despite the low level of losses and continued favourable reserve releases from prior years, pricing pressures for catastrophe business continued to overshadow the prospects of this sector during Q3 and Q4 of 2014.
During the first nine months of 2014, reinsurance companies saw catastrophe price declines of 20 percent in some cases, which was more pronounced in the US.
A.M. Best stated: “The dramatic price declines this year reflect the ongoing lack of market changing losses, as well as increased retentions by ceding companies and the inflow of capital (reinsurance capacity) from the capital markets, largely in the form of insurance-linked securities.”
Alternative capacity provided by the capital markets has remained a focus in 2014, and A.M. Best has stated that it expects this to persist.
In 2013, there was $7.6 billion in catastrophe bonds issued versus $6.15 billion issued in 2012.
So far in 2014, the market has seen close to $6.3 billion in cat bonds come into the market.
Investors’ interest in catastrophe bonds, particularly for US risks, and the lack of any major losses over the past few years have continued to drive down prices for global risks, including European wind, US hurricane and Japanese catastrophe exposures.
