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A.M. Best Sees Difficult Road Ahead for Global Reinsurers

Global reinsurers face challenges including increased competition and shrinking demand, following a “miraculous year,” A.M. Best said.

“New capital continues to enter the reinsurance market,” the ratings firm said in a report today. “This situation is exacerbated by primary insurers continuing to increase retentions. Given the major adversity overcome to produce a very respectable profit, 2013 was a miraculous year for reinsurers.”

The rates reinsurers charge customers are under pressure as low interest rates drive the $30 trillion pension fund industry to their market. Below-average catastrophe claims have also left the industry with abundant funds. Reinsurers help primary insurers shoulder risks in exchange for premiums.

Retentions, the part of the risk that primary insurers keep for themselves, have also increased following last year’s benign claims and more centralized reinsurance purchasing at insurers such as Allianz SE and Assicurazioni Generali SpA.

“The greatest opportunities usually follow significant catastrophes when capacity is in relatively short supply,” A.M. Best said in the report. “After the $100 billion industry losses in 2011, there were some pockets of short-lived opportunity, but the magnitude of those losses did not move the market as might have been expected.”

The earthquake and tsunami that hit Japan, floods in Thailand and Australia as well as the New Zealand earthquake made 2011 the most expensive year on record in terms of insured losses, according to Munich Re, the world’s biggest reinsurer.

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