Rate hardening or outlook downgrade?—AM Best

Speaking in Monte Carlo this year the rating agency said the large catastrophe events of 2011 have been largely earnings events for global reinsurers and that the industry’s capital position remains solid.

Much of the early losses in the first quarter were recovered by the mid point of the year and managements appear disciplined, largely holding the line on pricing and terms and conditions, it added.

However not all is rosy in the reinsurance garden.

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Little pricing improvement has been seen in 2011, according to AM Best, with a flattening or stabilisation of rates the norm. The industry as a whole is not expected to see an underwriting profit this year.

The sovereign debt and economic crisis in many European countries are adding pressure to the risk transfer industry’s risk adjusted capitalisation at a time when catastrophe losses, soft market conditions and thinning reserve positions are already pressuring company balance sheets, said the rating agency.

Furthermore many reinsurance companies with outsized exposures to certain EU country debt, particularly Spanish and Italian bonds, are finding their capital positions under strain in relation to financial strength ratings, it added.

“From a point in time looking at the balance sheet and risk adjusted capital there is a lot of resilience, a lot of strength of margin but really what is on the horizon?” questioned Stefan Holzberger, Managing Director of Analytics at the company.

“Is it additional further severe cat losses? Is it an economic market worsening? Where are reserves going? They are certainly a lot thinner than they have been in many years. What is going to be the results of these trends that are for the most part moving more in the wrong direction,” he continued.

“Is it a hardening of the market or is it perhaps a change in our stable outlook? Right now we are going to take a wait and see approach,” he concluded.