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Benedicte Gravrand, Opalesque Geneva: The reinsurance sector has not produced the greatest returns lately. Meanwhile alternative investors have been piling into it as a source of permanent capital, and this apparently threatens the returns on equity. But the asset class remains, as always, a worthwhile source of diversification for those who have a real need for it.
Fitch Ratings, for one, gives a negative outlook for the reinsurance market globally. Expansion of alternative capital sources within the reinsurance market is likely to contribute to lower returns on equity across the reinsurance sector and sustain the market's M&A wave, particularly among Bermudan firms, said the agency in February. Alternative sources of capital push the sector's capitalization levels higher and pressure pricing.
The timing of this influx is particularly challenging since there has not been much large catastrophe losses since 2012, which by itself has held reinsurance pricing down. Combined with low interest rates, the industry's returns have the potential to trend meaningfully lower over the coming years.
Alternative capital sources are beneficial to the industry, says Fitch, but "excessive capital capacity and expanding coverage options amid shrinking premiums are factors that have combined to drive intense, industry-wide competition." ...................... To view our full article Click here
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