Rate increases drive AM Best’s stable outlook for global reinsurers

AM Best has held its stable outlook for the global reinsurance market based on “substantial” rate increases, largely from property lines, which the rating agency said are unlikely to revert any time soon.

It added that higher average attachment points have also helped to widen profit margins for reinsurers that continued to take on risks after several market exits reduced supply.

AM Best said the stable outlook also considered increased demand for coverage, driven by elevated natural catastrophes losses and rising levels of investment income.

Offsetting factors, however, include uncertainty about underlying risks, in particular the frequency and severity of weather events. AM Best also highlighted “cautious” new capital entering the market and concerns about the impact of economic and social inflation as mitigating factors to the stable outlook.

“Consistent with recent history, insurers have been plagued by elevated weather-related losses, including secondary perils,” said Carlos Wong-Fupuy, senior director at AM Best. “Rising sea surface temperatures and elevated coastal property values continue to adversely impact modelled loss projections.”

Wong-Fupuy added that the withdrawal of capacity as some reinsurers retreat from property reinsurance has changed the profitability outlook for the sector.

“Those remaining reinsurers have benefitted from the reduced supply via drastically higher attachment points and higher risk-adjusted rates on line,” he said.

In addition, AM Best said: “Reinsurers won’t be relaxing their stance for some time.”

On the investment side of the books, AM Best said reinsurers recovered mark-to-market losses from the sudden rise in interest rates last year to boost their bottom line.

“The mark-to-market losses many insurers experienced was not substantial enough to result in a strategic shift in business to reduce capital burdens,” said Dan Hofmeister, senior financial analyst at AM Best. “Property/casualty reinsurers retained adequate liquidity and were able to recoup much of their losses as their fixed-income investments matured.”