Best Maintains Its Stable Outlook for Global Reinsurance Sector

A.M. Best is maintaining its stable outlook for the global reinsurance sector, citing substantial rate improvement—largely in property lines—with higher attachment points expected to widen reinsurers' profit margins.

The rating agency said its stable outlook for the reinsurance segment is also driven by increased demand for reinsurance coverage due to heightened catastrophic loss activity and increasing investment income that has seen reinsurers' new money yields on fixed-income investments more than doubling.

A Best's Market Segment Report, "Market Segment Outlook: Global Reinsurance," also notes several factors offsetting those positives in shaping its outlook, including the persistent growth in uncertainty about underlying risks, including the frequency and severity of weather-related events and evolving risk profiles. Best also cited cautious new capital despite improved market conditions as well as concerns about economic and social inflations as mitigating factors to its stable outlook.

"Consistent with recent history, insurers have been plagued by elevated weather-related losses, including secondary perils," Carlos Wong-Fupuy, senior director at A.M. Best, said in a statement. "Rising sea surface temperatures and elevated coastal property values continue to adversely impact modeled loss projections."

Best noted that those weather-related factors have led some reinsurers to pull significant amounts of capacity from the property reinsurance market. Reinsurers remaining in the market have benefited from the reduced supply by way of significantly higher attachment points and higher risk-adjusted rates on line, the rating agency said.

The Best report also addressed the impact of rising interest rates, particularly with regard to reinsurers' 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," Dan Hofmeister, senior financial analyst at A.M. Best, said in the statement. "Property-casualty reinsurers retained adequate liquidity and were able to recoup much of their losses as their fixed-income investments matured."