Reinsurer consolidation more likely than a Class of 2023, says AM Best
Consolidation among leading reinsurers as a result of the hard market is more likely than a Class of 2023 influx of new reinsurance entities, according to a new study by AM Best.
Past hard markets which occurred in the wake of Hurricane Andrew, September 11 and Hurricane Katrina led to the formation of new reinsurance companies in Bermuda and elsewhere, but there has been no sign of such a wave in 2023.
Ratings agency AM Best said in a market segment report entitled Global Reinsurers Face Challenges Even as Conditions Improve: “Capitalisation levels remain solid, but investor fatigue in both the traditional and insurance linked securities markets is real.
“Given the short-term and floating-rate nature of the underlying securities, ILS funds have not been materially affected by rising interest rates. However, total volumes have stalled since 2018. AM Best does not expect material new additions to net alternative capacity over the short term, even with much better pricing terms.“
The report said “years-long disappointing operating results and rising interest rates” meant that other investing options were more attractive than reinsurance, especially on a risk-adjusted basis.
The agency added: “The prospects for an influx of net capital sufficient to translate into a Class of 2023 are limited while these conditions hold.
“Investors will likely demand a strong commitment to underwriting discipline, as well as flexibility to adjust up to changing conditions in the business cycle.
“Well established, diversified companies with a proven track record are better positioned to succeed in this effort than start-ups pressured to meet top-line targets.”
AM Best added: “Consolidation is more likely than the emergence of a Class of 2023/24. Caution in deploying capital and underwriting discipline are critical for the medium to long term, but market participants are under pressure to innovate, expand their presence, and assert their role in an evolving economy in which today’s emerging risks will soon become the dominant ones.”