The global reinsurance industry's outlook remains stable, according to a report issued Tuesday by rating agency A.M. Best Co. Inc.

The report noted both “hopeful signs” and uncertainty affecting the sector related to developments such as catastrophes, regulatory changes and pricing.

Oldwick, N.J.-based Best said pricing already has gone up in some areas that have suffered catastrophes in recent months.

For example, rates on large property catastrophe reinsurance programs have risen up to 60% in Japan and Australia, according to Best. Jan. 1, 2012, reinsurance renewals in Europe may reveal more of the extent of the market turn, as the effects of recent losses and catastrophe modeler Risk Management Services Inc.'s new RiskLink Version 11 hurricane model are factored into prices then, Best said in a statement.

Reinsurers are managing their capital to prepare for a potential hard market, but stopping short of committing to initiatives that enable them to raise funds, Best said. Only four catastrophe bonds totaling $592 million were issued during the second quarter this year compared with eight totaling $2.1 billion at the same time last year.

“The numerous events that have occurred around the world over the past 18 months are manageable from a capital perspective,” Best said in its analysis.

Best said other factors also have given rise to uncertainty, such as the possibility of delaying implementation of the new Solvency II risk-based regulatory regime. “Talk of a delay points to mixed consequences for global companies and their regulators,” Best said.

Turning the tide

“The recent spike in global catastrophe activity, combined with changes in catastrophe models, is expected to bring about some change in the perception of risk on the part of the primary companies,” Best said. “This, together with increased regulatory pressures on solvency margins, may turn the tide on reinsurance demand, which should help to bolster current pricing for property-related business.”

But Best also said “a severe hit from a hurricane on the U.S. mainland could be the ultimate trigger for a broad-based turn in the market.”