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Published On: Tue, Sep 4th, 2018

Reinsurance Rates Escalating Across the Globe

The reinsurance environment has experienced tremendous changes caused by a year of record losses. The recent hurricanes striking the United States and the Caribbean combined with the earthquakes and wildfires consuming California and Mexico have had a major impact on the reinsurance rates. Catastrophe bond managers have chosen to launch new funds and hedge funds to buy reinsurance stocks and take advantage of the expected double-digit prices.

photo via Flickr stockmonkeys.com

How the reinsurance rates are escalating

According to JLT Re, with a record year of $140 billion worth of losses in insurance, the global reinsurance industry has turned a corner. James Kent, Global CEO of Willis Re, says that reinsurers across the board have been unsuccessful in trying to seek meaningful rate increases. He believes that this has been caused by the continued supply of capital. According to a JLT Re report, the property-catastrophe reinsurance index had a 4.8 percent increase. A report by Willis Re indicated that the global prices rose by up 7.5 percent.  While the property reinsurance prices raised by 5-10 percent in catastrophe-hit areas in Latin America and the U.S., the loss areas in the Caribbean experienced 20-40 percent rise.

An overview of the life reinsurance market

The global gross written life insurance premiums for 2016 amounted to $76.2 billion, which is a 0.7 percent increase from the previous year. On a gross written premium, the global market is expected to grow by about 3-5 percent in the next few years. The top five that dominate the global life reinsurance sector are likely to maintain their 71 percent market share dominance in the developed markets despite the growth opportunities available for regional or smaller players.

Factors causing growth for established reinsurers

In spite of the ongoing obstacles caused by low car insurance rates, lower returns, and a regulatory environment that is increasingly becoming complex, established reinsurers have experienced marginal growth in the past few years. Some of the factors believed to have caused the growth include progressive urbanization, changing socio-demographics in new markets, the consistent formation of the middle class, and the growth of the aging population, especially in mature markets. Factors such as declining growth rates and market consolidation don’t affect the global life reinsurance sector anymore as it used to be some years back.

It is predicted that there will be more growth in the near future because the cession rates for mortality lines appear to be leveling out rather than shrinking in the major life reinsurance markets. Although the conventional mortality business model is more prominent in the life business, leading global reinsurers are increasingly expanding their business mix. Primary insurance companies and reinsurers will face great opportunities and challenges as a result of the regulatory changes affecting geographic expansion, business diversification, digital capabilities and investments in innovation. The escalating reinsurance rates have made most insurance policyholders and even ceding companies more skeptical and fearful about the future.

Author: Jacob Maslow

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