AM Best has maintained its market segment outlook for the global reinsurance segment at stable, citing substantial rate improvement, primarily in property lines, with higher average attachment points expected to result in widening profit margins.
Additional factors partly contributing to the stable outlook include an increased demand for coverage due to heightened catastrophic loss activity and rising investment income with new money yields on fixed-income investments more than doubling, according to a new Best’s Market Segment Report, titled, “Market Segment Outlook: Global Reinsurance.”
The report cites several offsetting factors, chiefly the persistent growing uncertainty about underlying risks, including frequency and severity of weather-related activities and evolving risk profiles. Cautious new capital, despite improved market conditions, and concerns about economic and social inflation were also identified as mitigating factors to the stable outlook, according to the report.
“Consistent with recent history, insurers have been plagued by elevated weather-related losses, including secondary perils,” said Carlos Wong-Fupuy, senior director, AM Best. “Rising sea surface temperatures and elevated coastal property values continue to adversely impact modeled loss projections.”
These factors have prompted some reinsurers to retract significant amounts of capital from the property reinsurance market. Those remaining reinsurers have benefitted from the reduced supply via drastically higher attachment points and higher risk-adjusted rates on line.”
Despite some disparity between primary insurers’ and reinsurers’ underwriting returns through the year, AM Best believes reinsurers won’t be relaxing their stance for some time. The market is currently working in favor of reinsurers, but investors’ appetites had already been stressed for an extended period before the market shift.
The report also addresses the impact of the rise in interest rates, particularly with regard to unrealized investment losses. “The mark-to-market losses many insurers experienced was not substantial enough to result in a strategic shift in business to reduce capital burdens,” said Dan Hofmeister, senior financial analyst, AM Best. “Property/casualty reinsurers retained adequate liquidity and were able to recoup much of their losses as their fixed-income investments matured.”
To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=338063.