Reinsurers move to capital protection, not stabilising earnings

The global reinsurance industry is experiencing a transformative period characterised by robust technical profits and a positive outlook, AM Best has highlighted in a briefing at the Monte Carlo Rendez-Vous. 

The rating agency has revised its outlook for the global reinsurance sector from stable to positive, signalling more optimistic trends for reinsurers over the next few years. According to Carlos Wong-Fupuy, senior director of analytics at AM Best, the industry’s focus is shifting toward providing capital protection rather than merely stabilising earnings. 

“A revival of traditional reinsurance capital is evident.”

He said that current claims activity is being driven more by elevated medium-sized events and secondary perils than by single large-scale events. He added that hard pricing conditions are expected to last longer than in past cycles. 

As the hard market persists, a revival of traditional reinsurance capital is evident, recouping the majority of losses incurred in prior years. By the end of 2023, this capital approach was nearing the highs seen in 2021, buoyed by strong interest in catastrophe bonds and other insurance-linked securities.

For the first time in four years, reinsurers have met their cost of capital, AM Best said. This reflects a rebound in underwriting profits alongside capital gains, despite rising interest rates, equity market volatility, and broader economic uncertainties. Companies that effectively balance long-term strategies with tactical decisions and adept risk management are well-positioned to meet or exceed return expectations. 

For more news from the Rendez-Vous de Septembre (RVS) click here.

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