Hard reinsurance market to last longer than previous cycles, says Best

Hard pricing conditions in the reinsurance market are expected to last longer than in past cycles, according to AM Best, largely due to persistently high claims activity being driven more by the accumulation of medium-sized losses and secondary perils rather than single, major catastrophic events.

Best said the global reinsurance segment remains well-capitalised and a market reset by global reinsurers designed to de-risk portfolios, realign relationships with primary carriers and improve pricing, generated strong technical results for the segment in 2023.

The segment has seen a much-needed shift away from high-frequency layers, the adoption of tighter contract wording, and a better-defined scope of cover, with the combined effect having repositioned reinsurers’ traditional role to focus on providing capital protection to cedents, rather than stabilise earnings, said the ratings agency.

“The current hard cycle has not been characterised by capital depletion,” said Carlos Wong-Fupuy, senior director, AM Best. “Unlike previous hard cycles and despite the very attractive pricing environment, new company formations have not materialised, particularly in the property catastrophe space. Disappointing results during the previous, prolonged soft market deterred potential new investors.”

Best noted that combined ratios show very strong profit margins, more than offsetting concerns about adverse reserve development on certain legacy books of business, in particular US casualty.

It said rate softening is restricted to the most remote protection layers in the best-performing accounts in the US. “Pricing is still considered attractive and the required discipline to stick to the current terms and conditions seems to be here to stay. Reinsurance cover for high frequency risks has either become cost-prohibitive or is severely restricted to the best-performing books only,” said Best.