Excess capacity and shrinking demand for reinsurance are main reasons for Moody’s to slap a negative outlook on the sector in 2016.
In contrast, the global life and property and casualty (P&C) primary insurance industries both have stable outlooks for 2016, according to the
According to Moody's, reserve releases and benign cat losses have obscured the full extent of the deterioration in reinsurers’ earnings.
“Although reinsurers are taking steps to reposition for the new reality, including M&A and innovation in new products and markets, this exposes them to execution risk which can in some cases be meaningful,” Moody’s says.
In P&C insurance, although global growth will be modest, the rating agency expects still strong growth from emerging markets, albeit against economic headwinds. In life insurance, profitability will be supported by an intensifying shift in product mix, offset by continued
“For P&C, we expect that premiums will grow in line with economic growth in advanced economies, and faster in emerging economies based on rising penetration rates, even where economic growth is slowing,” Moodys’ added.
Mandatory purchase of major lines such as auto, home and commercial property is a plus for P&C insurers, and a key sector strength, Moody’s says, adding that P&C insurers generally maintain sound balance sheets with high-quality investments, adequate reserves and good capitalisation, contributing to the stable outlook for the sector.
However, Moody's sees potential challenges for the P&C sector in natural and man-made catastrophes, coupled with pricing/reserving for long-tail lines.