PRESS RELEASE

Moody's: Stable outlook for global reinsurers on balance sheet strength and sector consolidation

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Tuesday, September 4, 2018

Press release by Moody's

New York, September 04, 2018 -- The outlook for the global reinsurance sector for the next 12 to 18 months remains stable on the back of strong balance sheets, sector consolidation through M&A and rising profits, says Moody's Investors Service in a report published today.

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Moody's report, "Reinsurance -- Global: Strong capital and sector consolidation drive stable outlook", is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

"Good risk management and underwriting discipline mean reinsurers' balance sheets remain strong, while modest price hikes following the severe natural catastrophe events in 2017 and higher interest rates will bolster profits. Both factors underpin the continued stable outlook on the sector into 2019," says James Eck, Vice President -- Senior Credit

Officer at Moody's. "Recent M&A, diversification initiatives and corporate strategy shifts have also improved reinsurers' overall credit profiles."

Demand from primary companies has increased, alleviating some of the imbalance between supply and demand. However, weak pricing power during the mid-year reinsurance renewals suggests it may be harder to maintain pricing gains moving into the key January 2019 renewals.

M&A activity will continue in the sector as reinsurers push to increase scale and diversification, and improve profitability via capital efficiencies and cost reductions. Remaining reinsurers are stronger and more resilient. Smaller reinsurers, which have been more acutely affected by the evolution in reinsurance, will feel more pressure to find a larger partner.

Alternative capital vehicles will provide a competitive advantage for reinsurers with strong risk modelling capabilities and marketable underwriting skills. While alternative capital has strained reinsurance pricing and profitability for years, it has also enabled reinsurers to

lower their total cost of capital, helping them manage peak risk exposures and improve risk-adjusted returns.

Climate change issues are becoming more prominent for reinsurers, as the frequency of weather-related catastrophes increases, presenting opportunities for reinsurers to tap demand growth associated with climate risk adaptation strategies.

Technology and innovation provide increased efficiencies and growth opportunities, allowing reinsurers to benefit from the more efficient administration of key workflows. Advances in technology and partnerships with tech start-ups will allow reinsurers to access untapped markets.

Subscribers can access the report at:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1139273