Global Reinsurance 2014 outlook: Stable but abundant capital

The outlook for global reinsurance segment is predicted stable, according to AM Best’s report, as it believes that the American economic environment will be slightly improved in 2014 and most reinsurers focus more on their enterprise risk management system with an excellent risk-adjusted capital. This fact will help reinsurers to surpass high loss ratio from a combination of events, including natural and manmade catastrophes and volatile financial market crisis which are said to be continued to increase in 2014.

The global reinsurance market is witnessing the abundance in capital, especially from traditional reinsurance companies who successfully managed their exposure in recent years. The result is that too much capital provided to the same opportunities has created additional pressure on reinsurance pricing, terms and conditions. Another challenge for reinsurers is the upcoming enter to market of the third party investors such as hedge funds, pension funds.

This vast inflow of money through insurance-linked securities could be a threat to existing market. With external capital taking the higher layer exposures and primary insurance companies increasing their retentions, reinsurance companies seem to be stuck in the middle. These competitive factors urge reinsurers to improve their capacity both in term of business portfolio diversification, risk management and third- party capital controlling.

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