Two new reports from A.M. Best and the Association of Bermuda Insurers and Reinsurers point to relatively strong reinsurance underwriting results in 2014, but there’s a catch. Much of the improvement came from fewer catastrophes, and heavy competition threatens future gains.

A.M. Best said in its report that global reinsurance earnings were solid, benefiting “from another year of record low catastrophe losses” and favorable loss reserve development.

Specifically, the industry’s calendar year combined ratio landed at 89.5, versus 88.6 in 2013 and 92 in 2012. The U.S. and Bermuda market led the pack, with a combined ratio of 87.5, beating out Lloyd’s 88.1. The major European reinsurers – Munich Re, Swiss Re, Hannover Re and SCOR – came in with a 92.4 combined ratio. AM. Best said, adding that Europe’s results stem from “a broader portfolio diversification and less dependence on U.S. property catastrophe business.”

“Given that overall CAT losses remained below average in 2014, results for the global reinsurance market remained strong,” the ratings entity noted in its report. A.M. Best added that the global reinsurance sector has benefited from $56 billion in favorable reserve development since 2007.

At the same time, A.M. Best said, returns on investment are starting to decline with factors including low investment yields and less reserve redundancy, as well as higher commissions. Also expected to decline: investment income, as “yields remain at historically low levels.”

Separately, the Association of Bermuda Insurers and Reinsurers reported an upswing in 2014 global underwriting results for its members. The ABIR tallied $74 billion in global gross written premium, based on responses from 19 of its 21 member companies. That’s up from $70.1 billion in 2013. Combined net income came in at $11 billon, down slightly from $11.7 billion in 2013.

ABIR President and Executive Director Bradley Kading credited the results with low catastrophe losses, but noted the net income numbers are still below figures that came in from its members in 2009.

But, as he noted in prepared remarks, heavy competition and the M&A trend that began in late 2014 and early 2015 is expected to continue.

“Last year was characterized by intense market competition as pension fund capital converged with traditional [insurance/reinsurance] operations,” Kading said. “As for this year, the long anticipated consolidation among ABIR members [that] began in early 2015 … will dramatically change the landscape of this underwriting report in 2015.

A.M. Best also noted trouble ahead, with January renewals reflecting heavy competition, and continued price declines due to a lack of major losses, higher retentions and “the abundance of capital in the market.”

“The industry continues to face serious challenges in terms of the overflow of capital, softening premium rates, low interest rates and the possibility of lax underwriting by some in order to maintain business,” A.M. Best said in its report.

Sources: A.M. Best, ABIR