Swiss Re forecasts combined ratio of 100% for global non-life reinsurance industry in 2015

The global non-life reinsurance industry is expected to have a combined ratio of 90% this year and 100% in 2015, while underwriting standards in property & casualty insurance “will need to improve,” Swiss Re Ltd. stated in a report released Tuesday.

“Based on preliminary data, the reinsurance industry is expected to report a combined ratio of around 90% for the financial year 2014,” Swiss Re stated in its Global Insurance Review 2014 and Outlook 2015/16. 

“Assuming average catastrophe losses, somewhat softer reinsurance rates, a less benign claims environment than in the last three years, and declining reserve releases, the combined ratio in non-life reinsurance is forecast to be at around 100% in 2015.”

Worldwide, Swiss Re noted that profitability in non-life insurance “will continue to be challenged by the low investment returns and will need below-average catastrophe losses and reserve releases to be sustained. Since both cannot continue indefinitely, underwriting standards will need to improve.”

Non-life insurance premiums are expected to grow 2.8% in 2015, Swiss Re predicts.

The report also included a chart of real growth in direct premiums written in major markets.

In Canada, that growth was 1.6% in 2012 and 2.6% in 2013. Swiss Re is predicting growth of 1.2% this year, 1.1% in 2015 and 3.0% in 2015 in Canada.

“Global non-life insurance premiums are growing at a 2.5% pace in real terms in 2014, down from 3.0% and 3.1% in 2012 and 2013, respectively,” Swiss Re stated. “In the advanced countries, premium growth has slowed to 1.7% from 1.9% last year, due mainly to weaker markets in the US and Canada.”

The global non-life reinsurance industry “is currently heading for a third year of very strong underwriting results,” Swiss Re said. “Assuming there are no large catastrophes in the rest of the year, the combined ratio is expected to be around 90% again this year, and RoE will remain double-digit at 12%.”

In reinsurance, the combined ratio is expected to be about 90% but that figure “does not properly reflect the underlying underwriting profitability, because large natural catastrophe losses have been lower than anticipated and the claims ratio has been reduced by positive reserve releases derived from redundant reserves for prior years’ claims,” Swiss Re warned. “Excluding these two major impacts, the underlying underwriting result would instead be around 98%,” with return on investment at about 8%.

Swiss Re also discussed alternative capital in the report. Quoting from Aon Benfield, Swiss Re reported that in the middle of 2014, reinsurance capacity provided by alternative capital was estimated at US$59 billion, up from US$50 billion at the end of 2013.

“AC has now a 14% market share in the global property catastrophe reinsurance market.”