AM Best has maintained its market segment outlook for the global reinsurance segment asstable, citing the presence of highly uncertain market conditions with positive and negative factors offsetting one another.
According to Best’s new market segment report entitled, “Market Segment Outlook: Global Reinsurance”, among the negative drivers is the heightened natural catastrophe activity that continues to test investors’ risk tolerance levels.
Also cited in the report is geopolitical and economic uncertainty, in addition to growing claims costs. The report says that despite improving pricing trends and tighter terms and conditions, new traditional capital is cautious and remains on the sidelines, and similar constraints are being seen on the insurance-linked securities side of the market, particularly for retrocession capacity.
Several offsetting positive factors are recognised in the report, including upward pricing momentum and enhanced market discipline, including tighter terms and conditions. According to the ratings company, the demand for reinsurance capacity continues to grow, as primary insurance carriers seek out stable results and capital efficiency.
The report says early expectations of reinsurance rate increases started to attract new capital in 2019, in the hopes that natural catastrophe activity would subside and return to average historical levels. However, that hope has been negated by Hurricane Ian, estimated to be one of the costliest insured events in recent history.
Carlos Wong-Fupuy, senior director, AM Best says: “While the segment remains well-capitalised, ongoing interest rate hikes and volatile investment markets have materially reduced shareholders’ equity on a market value basis.”
