Global reinsurance sector outlook remains stable: A.M. Best
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A.M. Best Co. Inc. is maintaining its “stable” outlook for the global reinsurance segment due in part to a stable pricing environment in the global property/casualty segment and the continued presence of third-party capital, the ratings agency said in a report Friday.
Prices, however, remain below levels of “long-term adequacy,” Best said.
Nonlife reinsurance pricing “appears to be developing a more favorable momentum,” Best said, and noted “the continuing alignment between traditional and third-party capital.”
There is a belief that “third-party capital will hold the line on future return expectations following the impact of major catastrophe losses,” Best said, adding that such capital is more frequently being deployed in retrocessional programs to reduce capital consumption and earnings volatility for traditional reinsurers.
“The catastrophic events of 2017 and 2018 represented a significant test of alternative capital use, which has led to both an affirmation of the third-party capital owners’ persistency, as well as the re-evaluation of the return requirements and governance of the structures employed,” Best said.
Demand for nonlife property/casualty reinsurance has increased, driven by primary companies’ recent loss experience as well as increased demand from government risk pools, such as the National Flood Insurance Program in the U.S., Best said.
Rates in some U.S. casualty lines, however, remain inadequate, and “a steady decline in the benefit of favorable reserve releases” coupled with “the pervasive low interest rate environment,” are headwinds to the segment.
“The collective effect of these factors requires underwriting discipline; failure to react to these pressures could adversely affect the segment,” Best said.
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