AM Best maintains global reinsurance market outlook at stable

Tuesday, 10 December 2019

ICMIF Supporting Member AM Best has maintained a market segment outlook of stable on the global reinsurance industry for 2020, citing a stabilized pricing environment - albeit at levels below long-term adequacy - the continuing alignment between traditional and third-party capital and ongoing stability in the global life reinsurance segment.  

The new Best’s Market Segment Report, titled, “Market Segment Outlook: Global Reinsurance,” states that although rates in the non-life reinsurance market have improved modestly, pricing has not kept adequate pace with the changing risk dynamics, as illustrated by loss development from events such as hurricanes Irma and Maria and Typhoon Jebi, and potential losses from more-recent events (eg Hurricane Dorian). Property catastrophe pricing still is being driven by the availability of third-party capital; however, the increasing interdependence between traditional capacity and third-party capital through joint ventures, retrocession and direct ownership should serve to more closely align return objectives for the market overall.

Third-party capital also represents a benefit in the form of stabilized earnings of rated balance sheets, due to tail risk being assumed by this capital.

Overall market conditions are improving, but AM Best says it remains concerned about insufficient rate adequacy relating to certain US casualty lines, a steady decline in the benefit of favourable reserve releases and the pervasive low interest rate environment. The collective effect of these factors requires underwriting discipline, and failure to react to these pressures could adversely affect the segment, said the rating agency.

The report outlines other factors that are driving the stable market segment outlook, including:

  • AM Best believes alternative third-party capital will hold the line on future return expectations following the recent heavy catastrophe loss years;
  • A decline in capital consumption and earnings volatility, due in part to the increased utilization of third-party capital in retrocessionaire programmes;
  • Greater emphasis on underwriting discipline due to pressure on interest rates and potential slower economic growth globally;  
  • Improving pricing momentum driven by higher loss costs, coupled with lower loss reserve redundancies;
  • Increased demand for non-life reinsurance due to primary companies’ recent loss experience, as well as new risk transfer opportunities and mergers and acquisitions;
  • Stable operating performance among life reinsurers, which continue to maintain defensible market positions and offer services beyond risk transfer that create hurdles for new entrants.

To view a video with AM Best Associate Director Scott Mangan (pictured) about the global reinsurance market segment outlook, please visit http://www.ambest.com/v.asp?v=globalreoutlook1219.

In case you missed any of them, a summary selection of earlier Special Reports, Commentary and industry analysis published by AM Best this year, is available here: Best's Industry Research 2019.