AM Best has revised its market segment outlook for the global reinsurance segment to ‘positive’ from ‘stable’, citing the robust profit margins along with higher attachment points and tighter terms and conditions that followed a period of drastic repricing.
According to the rating agency, despite decelerating reinsurance rate increases, underwriting discipline is maintained, and profit margins remain healthy enough to absorb higher loss activity than recently experienced.
Carlos Wong-Fupuy, senior director at AM Best, comments: “Demand for coverage remains strong due to heightened natural catastrophe loss activity and general economic uncertainty.
“We also considered the expectations of a slower reduction in interest rates than originally anticipated, which are likely to support strong returns in the short term.”
AM Best also notes that recently improved and stabilised underwriting margins followed a string of disappointing results in the years after heavy weather-related losses in 2017, notably Hurricanes Harvey, Irma, and Maria.
Various actions aimed at tightening terms and conditions compounded the repricing efforts, with a diminished appetite for aggregate protection, a focus on named perils, a shift from proportional to excess loss covers, and a sharp increase in attachment points.
The agency observes that reinsurance books for the largest players continue to expand owing to a combination of higher reinsurance rates, a flight to quality, and increased demand.
While large losses, such as the collapse of the Francis Scott Key Bridge in Baltimore, impacted loss ratios during the first quarter of 2024, underwriting margins and annualised return on equities remained strong.
Wong-Fupuy remarks: “AM Best believes that the exceptional returns on equity experienced in 2023 are unlikely to be repeated at such a high level, but expects reinsurers to focus on underwriting discipline in the near term.”
