AM Best maintains stable outlook on global reinsurance sector amid favourable market conditions

Substantial rate improvement, increased demand for protection, and rising investment income has led AM Best to maintain its stable outlook for the global reinsurance sector.

As the January 1st, 2024, reinsurance renewals fast approaches, the ratings agency believes that reinsurers won’t be relaxing their current stance for some time, and therefore expects the market to remain favourable for reinsurers, supported by higher average attachment points and widening profit margins.

AM Best notes substantial rate improvement, notably in property lines, as well as increased demand for reinsurance coverage on the back of elevated catastrophe losses and general economic uncertainty, but also strong demand for life and annuity reinsurance from US-based insurers.

On top of this, the ratings agency expects reinsurers to benefit from rising investment income, noting that new money yields on fixed-income investments have more than doubled.

“Consistent with recent history, insurers have been plagued by elevated weather-related losses, including secondary perils,” said Carlos Wong-Fupuy, senior director, AM Best.

“Rising sea surface temperatures and elevated coastal property values continue to adversely impact modeled loss projections. These factors have prompted some reinsurers to retract significant amounts of capital from the property reinsurance market. Those remaining reinsurers have benefitted from the reduced supply via drastically higher attachment points and higher risk-adjusted rates on line,” he added.

While the current landscape is clearly beneficial for reinsurers, AM Best does highlight a number of factors that could counter the positives.

This includes persistent and growing uncertainty about underlying risks, cautious new capital in spite of better market conditions, ongoing concerns around economic and social inflation, and higher post-COVID mortality in certain markets.

All of this comes from AM Best’s latest report on the global reinsurance market segment, which explores the impact of higher interest rates, the hard market environment, insurability, rates, and capital.

Commenting specifically on the higher interest rate environment, Dan Hofmeister, senior financial analyst, AM Best, said: “The mark-to-market losses many insurers experienced was not substantial enough to result in a strategic shift in business to reduce capital burdens.

“Property/casualty reinsurers retained adequate liquidity and were able to recoup much of their losses as their fixed-income investments matured.”

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