Reinsurer tiering increasing, says Moody's

The EMEA reinsurer tiering trend is increasing, while larger firms are in a better position to weather the tough market, according to Moody’s.

Speaking at a press conference, Moody’s Financial Institutions Group specialty insurance vice president Brandan Holmes said the rating agency was “seeing more tiering in the market, so there is a widening gap between the top tier, larger, more sophisticated reinsurers, and the lower tier”.

Holmes said that this was driven by many factors, including large cedants’ desire for dealing with large reinsurers that can handle entire reinsurance accounts across all countries and product lines.

“And I think companies are also looking to reinsurers more for the service and technical expertise they can offer beyond capacity, which might have been the case in the past,” he added.

“Our view is that those companies that find themselves in the top tier are in the best position to defend their position in this difficult environment for reinsurers.”

The rating agency has a negative outlook on the reinsurance sector as a result of the tough market conditions it faces.

These include excess capital and cedants buying less reinsurance, Holmes said.

Insurance M&A activity is at its highest level for years, and that the 2015 year so far has seen more than $250bn spent on such deals, according to Moody’s associate managing director Antonello Aquino.

The long-term benefits of recent big-ticket mergers have outweighed the usual risks, he went on.

Traditionally, M&A has proved credit negative for the acquirer, but with deals like Willis-Towers Watson and Fosun-Ironshore the potential long-term gains have outweighed the risks.

Moody’s Global Insurance group managing director Simon Harris said: “M&A is often credit negative for the acquirer, although recent deals have led to a more mixed credit response, with the long-term benefits of franchise-changing deals often being significant.”