A.M. Best Revises Outlook for Global Reinsurance Industry to Positive

A.M. Best has upgraded its market segment outlook for the global reinsurance sector to positive from stable. This change reflects robust profit margins and higher attachment points, along with tighter terms and conditions after a period of significant repricing.

Although reinsurance rate increases are slowing, underwriting discipline remains strong, and profit margins are sufficient to handle higher loss activities, according to the latest Best's "Market Segment Outlook."

"Demand for coverage remains strong due to heightened natural catastrophe loss activity and general economic uncertainty," said Carlos Wong-Fupuy, senior director, A.M. Best. "We also considered the expectations of a slower reduction in interest rates than originally anticipated, which are likely to support strong returns in the short term."

The report highlights improved and stabilized underwriting margins following disappointing results in the years after severe weather-related losses in 2017, including Hurricanes Harvey, Irma, and Maria. Repricing efforts have been bolstered by measures to tighten terms and conditions, with less appetite for aggregate protection, a focus on named perils, a shift from proportional to excess of loss covers, and a significant increase in attachment points.

The largest reinsurance players continue to expand their books, driven by higher reinsurance rates, a flight to quality, and increased demand. Despite large losses, such as the collapse of the Francis Scott Key Bridge in Baltimore during the first quarter of 2024, underwriting margins and annualized ROEs remain robust.

"A.M. Best believes that the exceptional returns on equity experienced in 2023 are unlikely to be repeated at such a high level, but expects reinsurers to focus on underwriting discipline in the near term," Mr. Wong-Fupuy said.

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