AM Best has revised its outlook for the global reinsurance market to positive
Ratings agency AM Best revised its sectoral outlook for the global reinsurance industry from stable to positive, citing expectations of positive reinsurer margins and saying it expects underwriting to remain tight.
This is the first time that AM Best has assessed the global reinsurance market as positive in several years. The agency first downgraded the reinsurance sector back in August 2014, when all the major agencies took that stance amid a soft market.
In December 2018, AM Best revised its outlook for global reinsurance to stable, citing more stable rates as excess capital supported the reinsurance business after heavy losses in the previous two-year period.
Coming back from a recent tough market period where the outlook has remained stable until now, AM Best is increasingly confident about the future outlook for reinsurers. In addition to profitability, analysts also highlight a new reality in a market where conditions have become much more favorable for investors.
This is despite the fact that recent increases in reinsurance rates have slowed as underwriting discipline remains strong and margins remain stable enough to cover reinsurers’ higher losses.”
“Demand for coverage remains strong due to increased losses from natural disasters and general economic uncertainty. We have also considered the expectation of a slower decline in interest rates than initially expected, which is likely to support strong returns in the short term,” explained Carlos Wong-Fupui, senior director of AM Best positive outlook for the sector.
Reinsurance underwriting margins have improved and stabilized, the agency said, thanks to efforts to change rates and establish tighter terms, targeted coverage of certain risk categories, reduced appetite for aggregate reinsurance coverage and a shift from proportional to excess reinsurance.
The rating agency also noted that major reinsurers are growing by expanding their reinsurance portfolios due to a combination of higher reinsurance rates and increased demand from cedants.
Although loss figures were impacted by significant events in the first quarter of 2024, including the collision of a vessel with the Francis Scott Key Bridge in Baltimore, which caused it to collapse, AM Best says the reinsurer’s underwriting margins and annual capital return remain strong.
“AM Best believes that the extraordinary return on capital recorded in 2023 is unlikely to repeat at such a high level, but expects reinsurers to focus on underwriting discipline in the near term,” concluded Wong-Fupui.