The issue is being compounded by a lack of confidence in reinsurers’ business models and little distinction within the sector according to the  report by PwC.

It says companies will need to move away from ‘diversified’ business models to attract greater capital markets interest and improve shareholder returns, amid the current low-rate environment. 

The report ‘Daring to be Different’, found the capital markets are not convinced in the traditional, more diversified, reinsurance model. Analysis conducted by PwC shows that the vast majority (89%) of the main listed reinsurers are trading at below book value. The research also reveals that absolute returns offer little comfort - an investment in a basket of reinsurance stocks at the start of 2004 would have generated virtually zero total return to shareholders, with very little difference between European and US/Bermuda reinsurers. 

James Quin, European Insurance Market Reporting Leader at PwC, said: “The uncorrelated risk argument for investing in reinsurance ought to be very attractive in the current environment, but virtually all listed reinsurers are trading at material discounts to tangible book value. Clearly, the benefits of diversification and the distinction between reinsurers and other financial services companies are far from obvious to the capital markets.” 

With many reinsurers pursuing a diversification strategy, this leaves investors with little option but to differentiate between companies purely on a relative yield basis. The report suggests reinsurance companies’ search for diversification is often viewed by investors as undermining accountability and as a justification for growth and ‘mission creep’ over returning cash to shareholders.