Global Reinsurance Market Report
Reinsurance is also known as "insurance for insurers". Reinsurance allows an insurance company to reduce the risks associated with underwritten policies. This is done by spreading risks across alternative institutions. The party that diversifies its insurance portfolio is known as the ceding party. The one that accepts a portion of the potential obligation in exchange for a share of the insurance premium is known as the reinsurer.
Reinsurers help insurance providers avoid loss in case a large number of policyholders make claims during catastrophic events. This cover allows the underwriters to recover all, or part, of the amounts they pay to claimants.
Broadly, at the global level, there are two types of reinsurance, based on the type of cover.
Facultative reinsurance protects an underwriter only for a particular individual, or a specified risk or contract. This type of policy is less common because each policy is offered and considered on an individual risk basis.
Treaty reinsurance accepts a specific level of risk from the primary insurer. The primary insurer must cede and the reinsurer must accept all risks that fall within terms of the agreement. Risk sharing under a treaty reinsurance contract is determined in two ways:
Under a quota sharing arrangement, the primary insurer and reinsurer share in the premiums and losses of every policy on a fixed percentage basis.
Through a surplus sharing agreement, the primary insurer covers all claims to an agreed level and the reinsurer covers the rest.
Regional Market Shares
The key geographies for the reinsurance industry include the USA, Europe and Bermuda.
By premium volume, the US is the largest insurance market by country in the world. The US together with Canada and Latin America represents about 15% of the global reinsurance market. According to analysis by the Reinsurance Association of America, approximately $46 billion in total property and casualty reinsurance premiums were ceded by US-based insurers to unaffiliated reinsurers; of this amount, about $28.4 billion of premiums were ceded to non-US reinsurers and approximately $17.6 billion of premiums were ceded to US reinsurers.
Five of the six largest reinsurance groups in the world, by premium volume, are based in Europe including Munich Reinsurance Co., Swiss Reinsurance Co. Ltd. and SCORSE. Over 27% of worldwide reinsurance premiums are written by German companies. The London market represents nearly 9% of the market, and the rest of Europe accounts for about 10%.
The Bermuda reinsurance industry is more recent but experienced high growth beginning in the 20th century because of the low-tax environment it offers. Since then, Bermuda has emerged as an important market for reinsurers with a substantial concentration of capital and reinsurance-related resources. According to Standard & Poor, Bermuda hosts about 15 of the world’s largest reinsurance groups, as measured by net reinsurance premiums and holds about 8% of the global reinsurance market. The captive insurance business, emerging mainly out of Europe and the US, has contributed significantly to the growth in Bermuda.
Key trends witnessed in the global reinsurance market include:
The emergence of an alternative reinsurance market is adding competition and increased capacity. This is likely to dampen reinsurance pricing and impact profitability. The new competitors enter the reinsurance market from a range of financial instrument industries, including asset managers investing in insurance-linked securities. Reinsurers with exposure to property catastrophe risks are most vulnerable to this competition as third-party capital influx is greater in this segment which historically has the highest margins. Guy Carpenter & Company estimates show capital from the alternative markets totaling about $50 billion, or approximately 15% of the global property catastrophe reinsurance and expected to rise to about 30% in the near future.
Traditional underwriters are diversifying into new business lines or geographic markets through acquisitions. For instance, Arch Capital Group Ltd. recently expanded into the US mortgage insurance market by acquiring CMG Mortgage Insurance Co. from CUNA Mutual Group and PMI Mortgage Insurance Co. Such transactions pose risk as the acquirer ventures into less-known territory but also help the companies improve scale and increase diversity.
There is large growth potential for reinsurers in Asia because of its low insurance penetration compared with the matured markets. Increasing risk awareness by the direct insurance companies in the region is translating to demand for reinsurance protection, especially following the many natural catastrophes that have occurred in recent years. The growth of Asian economies also fuels demand for insurance protection. For these reasons, many global reinsurers are focusing on Asia and on China in particular. For instance, Swiss Re Corporate Solutions recently acquired Sun Alliance Insurance China Ltd and is now fully licensed and operational in China.
List of Top Analysts
- Reinsurance Association of America
- Insurance Europe
- European Captive Insurance and Reinsurance Owners Association
- The Global Federation of Insurance Associations
- The Singapore Reinsurers' Association
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