AM Best has revised its outlook for the global reinsurance sector to stable from negative.
The credit ratings agency cited stabilising prices for non-life reinsurance, although “at levels still below long-term adequacy”, as well as ongoing stability in the life segment.
“In the face of a persistently competitive market environment, non-life reinsurance pricing appears to have settled at the bottom of the cycle for the near future,” Best’s report states.
Best commented: “That the glory days of a robust non-life pricing environment may not return is clear. Rates have stabilised, as the industry was reminded again in 2017 that almost $150 billion of capital can disappear over a very short period of time.
“What’s also clear is that property catastrophe pricing is still being driven by the availability of alternative third-party capital and is not as heavily influenced by the traditional reinsurance companies.”
It added that alternative capital had become more aligned with traditional capital.
Losses emanating from some of last year’s events have been greater than estimated and that had impacted the market, Best added.
“The longer-than-anticipated claims settlement loss tail associated with some catastrophe losses experienced in 2017, particularly Hurricanes Irma and Maria, has led both investors and capacity users to pause and reassess the changes needed in underlying agreements.
“These changes may result in a more measured use of alternative capital structures than currently exists.”
Significant factors supporting the revision of Best’s outlook include:
• The belief that alternative third-party capital will hold the line on future return expectations following the catastrophe losses in 2017 and 2018.
• A rising interest rate environment, particularly in the US, which could lead to alternative investment opportunities for third-party capital and increase investment incomes.
• A renewed emphasis on underwriting discipline.
• Ongoing US economic growth, greater use of reinsurance by cedents, new risk transfer opportunities, and M&A all providing greater growth opportunities.