“Despite challenging conditions, the global reinsurance segment still returned an underwriting profit in 2022,” according to AM Best.
The findings were published in AM Best’s new market segment report, ‘Global Reinsurers Face Challenges Even as Conditions Improve,’ in which the challenging conditions were characterised by persistent and elevated claims activity.
AM Best notes: “Concerns about economic and social inflation, central banks’ contractionary monetary policies, asset market volatility, and the recent underperformance of the global reinsurance segment, have translated into a higher cost of capital.
“Given reinsurers’ prudent approach to deploying capital, they are likely to preserve underwriting discipline for a longer period compared to previous cycles. However, market participants are under pressure to innovate and expand in an evolving economy in which today’s emerging risks will soon become the dominant ones. Our stable outlook on the global reinsurance segment reflects this balancing act.”
AM Best also notes: “In the past few years, there has been a shift toward non-catastrophe risks, especially for carriers heavily affected by losses in previous years. With much-harder market conditions since the start of 2023, interest in property catastrophe risks has renewed cautiously.”
In 2022, AM Best’s global reinsurance composite posted a combined ratio of 95.6, a 0.8 per cent improvement over 2021. While investment results were affected severely by unrealised losses on fixed-income securities. The global reinsurance segment posted a return on equity of 0.8 per cent in 2022, following a 9 per cent return on equity in the previous year.
Reinsurers’ profitability began seeing improvement in 2021, reflecting key players’ shift from the lower and medium layers of property catastrophe risks.
The report is part of the rating agency’s analysis of the global reinsurance industry ahead of the reinsurance event ‘Rendez-Vous de Septembre’ taking place in Monte Carlo next month.
Commenting on the report, Carlos Wong-Fupuy, senior director at AM Best, says: “The January 2023 renewals highlighted the mismatch between supply and demand, but it’s important to recognise the difference between ‘available’ and ‘deployed’ capacity. Available capital is not under pressure; however, the well-established global reinsurers have become much more cautious allocating their capital, which pressures the deployment of capacity.”
