A.M. Best: Global Reinsurance Market Outlook Stable

The word STABILITY on a ceramic building wall

December 09, 2019 |

The word STABILITY on a ceramic building wall

AM Best has maintained a market segment outlook of stable on the global reinsurance industry for 2020, citing a stabilized pricing environment—albeit at levels below long-term adequacy, the continuing alignment between traditional and third-party capital, and ongoing stability in the global life reinsurance segment.

Although rates in the non-life reinsurance market have improved modestly, AM Best said, pricing has not kept adequate pace with the changing risk dynamics, as illustrated by loss development from events such as Hurricanes Irma and Maria and Typhoon Jebi, and potential losses from more recent events (e.g., Hurricane Dorian).

Property catastrophe pricing is still being driven by the availability of third-party capital; however, the increasing interdependence between traditional capacity and third-party capital through joint ventures, retrocession, and direct ownership should serve to more closely align return objectives for the market overall, according to the rating agency.

Third-party capital also represents a benefit in the form of stabilized earnings of rated balance sheets, due to tail risk being assumed by this capital.

Overall market conditions are improving, but AM Best remains concerned about insufficient rate adequacy relating to certain US casualty lines, a steady decline in the benefit of favorable reserve releases, and the pervasive low interest rate environment. The collective effect of these factors requires underwriting discipline, and failure to react to these pressures could adversely affect the segment.

AM Best noted the following other factors that are driving the stable market segment outlook.

  • AM Best believes alternative third-party capital will hold the line on future return expectations following the recent heavy catastrophe loss years
  • A decline in capital consumption and earnings volatility, due in part to the increased utilization of third-party capital in retrocessionaire programs
  • Greater emphasis on underwriting discipline due to pressure on interest rates and potential slower economic growth globally
  • Improving pricing momentum driven by higher loss costs, coupled with lower loss reserve redundancies
  • Increased demand for non-life reinsurance due to primary companies' recent loss experience, as well as new risk transfer opportunities and mergers and acquisitions
  • Stable operating performance among life reinsurers, which continue to maintain defensible market positions and offer services beyond risk transfer that create hurdles for new entrants

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December 09, 2019