A.M. Best sees global reinsurance market stable

The rating outlook for the global reinsurance segment remains stable, indicating that over the next 12 to 18 months, majority of rating actions within the segment will be affirmations, with only a limited number of upgrades or downgrades, says A.M. Best.

The stable outlook is predicated on strong risk-adjusted capital, discerning enterprise risk management and a slow improvement in the global economic environment under-pinned by the United States, which represents the world’s largest insurance market.

Reinsurance companies continue to be disciplined on both the underwriting and investing sides, and net favourable loss-reserve development has cushioned deterioration in underwriting margins and weakness in investment earnings.

Risk-adjusted capital for global reinsurers remains excellent, and companies have the wherewithal to endure significant losses from a combination of events, including natural and manmade catastrophes and volatile financial market risks.

Traditional reinsurance companies are flush with capital as a result of successfully managing their exposures in recent years. However, in the supply/demand equation, too much capital chasing the same opportunities has put pressure on reinsurance pricing, terms and conditions.

Despite less than robust market opportunities, capital from third party investors such as hedge funds and pension funds continues to enter the reinsurance market, creating additional underwriting pressure within the overall reinsurance segment as available capacity is reallocated to classes other than property catastrophe.