The environment facing the international insurance industry remained challenging in 2015: with the general level of interest rates still being extremely low, insurers devoted particularly close attention to preserving the value of their investments and the stability of returns.

One response to the more demanding market conditions in the insurance sector has been an appreciable increase in the number of companies joining forces – whether through mergers, acquisitions or equity investments. According to industry analysts, M&A activities among both insurers and reinsurers were more intensive last year than they had been in a long time. Within the first nine months alone 15 transactions were documented worldwide. They estimate that this trend will continue in 2016.

The insurance industry was again heavily preoccupied in 2015 with preparations for the new requirements governing financial risk protection. In Europe this takes the form of Solvency II: the reform of insurance supervision law initiated by the European Commission entered into force on 1 January 2016 and compels P&C and L&H insurers, most significantly, to maintain a higher minimum level of own funds. Regulators are allowing a transitional period for gradual adoption of the revised methodology that must be used to measure the provisions in order to enable them to progressively build up the required own funds. In this connection a number of large reinsurers have received approval from the Federal Financial Supervisory Authority (BaFin) to use their own internal capital models and are already showing comparatively high capital ratios.

Risk-based solvency systems are currently the focus of attention worldwide: in China, for example, the Risk Oriented Solvency System (C-ROSS) has been adopted and in South Africa the Solvency Assessment and Management (SAM) framework is being implemented.

In the area of property and casualty reinsurance the prevailing intense competition was sustained in 2015: in the absence of market-changing large losses insurers continued to enjoy strong capital resources, hence further supporting the trend towards increased retentions. At the same time the market for collateralised reinsurance products continued to build substantial capacities and thereby absorbed additional risks that had hitherto been covered on the reinsurance market. For the reinsurance sector this was accompanied by further pressure on prices and conditions. To some extent it was possible to offset this decline through stronger demand resulting from preparations for the requirements of Solvency II.

On the product side 2015 once again opened up some intriguing possibilities: increasing digitalisation, for example, stimulated demand for protection against cyber risks.

The life and health reinsurance market is still going through a process of adjustment: in Germany the appeal of traditional life insurance policies has continued to diminish in tandem with the protracted low interest rate environment. In the United Kingdom the reform of the Pensions Act in April led to a shake-up of the pensions market: for those (re)insurance industry players covering the longevity risk the reform means that existing insurance solutions must be modified to fit the new conditions.

Demographic changes around the world are generating increased demand for reinsurance protection in the area of longevity solutions. So-called “lifestyle products” are also enjoying a surge in demand: these primarily involve life insurance policies under which the premium is linked to the insured’s healthy lifestyle (e. g. fitness, nutrition). These products are especially popular in Australia, South Africa and the United States.

The Chinese insurance market continues to grow at an above-average pace. The new solvency requirements (C-ROSS) implemented on 1 January 2016 had already been applied by insurers on a “trial basis” in 2015. This had an effect on demand patterns for reinsurance solutions.

 

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