AM Best retains stable outlook for global reinsurance

Credit rating agency AM Best has maintained its stable outlook for the global reinsurance segment, it said in its Global Reinsurance Market Segment Outlook report. This primarily reflects a pricing environment in the global non-life reinsurance segment that has stabilised—albeit at levels still below long-term adequacy—and ongoing stability in the global life reinsurance segment.

Key factors that support AM Best’s stable outlook for global non-life reinsurance include the continuing alignment between traditional and third-party capital; the belief that third-party capital will hold the line on future return expectations following the impact of major catastrophe losses; and a decline in capital consumption and earnings volatility for traditional reinsurers, due in part to the increased utilisation of third-party capital in retrocessionaire programs.

AM Best also took into account pressure on interest rates, resulting from the prospect of slower economic growth globally, which should foster greater discipline to produce underwriting profit commensurate with total return expectations.

Other factors affecting the outlook included improving pricing momentum driven by higher loss costs, coupled with lower loss reserve redundancies or possibly reserve deficiencies relating to select casualty classes where pricing had been overly competitive; and growth opportunities provided by new risk transfer opportunities, mergers and acquisitions and greater use of reinsurance by cedants,

“The glory days of a robust non-life pricing environment may not return given the fluidity of capital inflows to the sector,” said AM Best. “Although rates have improved modestly, pricing has not adequately kept pace with changing risk dynamics, as illustrated by recent losses and potential losses from events such as Hurricane Dorian and Typhoon Faxai.”

Key factors that have led to the AM Best’s stable outlook for global life reinsurance include well-known reinsurers who offer services beyond risk transfer, creating a high hurdle for competitors seeking to build scale; stable operating performance that has benefited from an expanded portfolio that includes longevity, mortality, and health products; and favourable market conditions that provide opportunities that benefit established players and new entrants through a robust block acquisition pipeline and pension risk transfer activity.

“The leading life reinsurance carriers maintain solid and defensible market positions, with moderate premium growth and strong earnings from their seasoned mortality books of business,” said AM Best. “Relationships built over many years offer a competitive advantage that new entrants simply cannot easily replicate. Additionally, more established reinsurers are often viewed as business partners who offer more than risk transfer solutions, by participating in the product development and underwriting functions of the primary insurer.”

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