Hard reinsurance market should last, says AM Best
Favourable reinsurance underwriting margins are likely to last for at least another two years if underwriting discipline is maintained.
That’s the view of ratings agency AM Best in in its latest segment report on the global reinsurance sector.
The report, entitled "Strong Technical Profits Bolster Momentum for Global Reinsurers", said reinsurers were more focused on providing capital protection than stabilising cedents’ earnings and that current claims activity was being driven by elevated medium-sized events than by single large-scale events.
AM Best also said it expected strong pricing conditions to last longer than in past cycles, in part because of the lack of new entrants into the market – a feature of past hard markets.
The report came after AM Best raised its outlook for reinsurance earlier this year to positive from stable for the first time in its history.
The agency said hard pricing conditions were likely to last longer than in previous cycles due to:
Claims being driven by medium sizes losses and secondary perils.
The segment remaining well capitalised with solvency positions not being under meaningful pressure.
Adequate capacity meaning existing players were well positioned to benefit from the hard market, which also acted as a deterrent to new start-ups being funded.
AM Best said the risk environment was becoming more difficult to quantify due to the emergency of risks such as geopolitical instability, cyber, artificial intelligence and pandemics, but said this represented a “golden opportunity” for the reinsurance sector to maintain its “critical role in the broader economy”.
“Whether as a risk carrier, provider of services related to risk management or developer of alternative solutions, the segment is in a strategic spot to leverage its knowledge and expertise,” the report said.
It added that the main reason for the reinsurance industry generating excellent technical results in 2023 was the absence of a single major catastrophe.
“Higher attachment points, lower limits, added exclusions and narrower contract wording generally signify that most of the working layers’ claims costs are being retained by primary carriers,” the report said. “Rate softening is restricted to the most remote protection lawyers in the best performing accounts in the US.
“Pricing is still considered attractive and the required discipline required to stick to the current terms and conditions seems to be here to stay.
“Reinsurance cover for high frequency risks has either become cost-prohibitive or is severely restricted to the best-performing books only.”
Am Best said renewals in 2024 were smoother than in 2023, which was attributed to better management of cedents’ expectations rather than reduced demand.
“Risk-adjusted rate increases clearly slowed at mid-year 2024 (and for the best-performing books, they were even slightly negative), which has led to mixed reactions – particularly from US and Bermuda reinsurers as opposed to the largest Europeans – towards highly exposed areas such as the Florida market.”
The agency said interest in Florida has increased following recent insurance legislative reforms, and it said that even with forecasts of a very active hurricane season, it would take a single major event to have a significant effect on rates.
“After the de-risking measures adopted in the last couple of years, AM Best believes that the segment is in a much stronger position than in the last to absorb the impact.”
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