Reinsurers Reap Strong Technical Profits Amid Strategic Market Reset

Global reinsurers achieved robust technical profits in 2023, driven by strategic efforts to de-risk portfolios, realign relationships with primary insurers, and enhance pricing, according to a new A.M. Best report. These moves, which included reducing exposure to high-frequency layers, tightening contract terms, and refining coverage scopes, have shifted reinsurers' roles toward providing capital protection rather than stabilizing earnings.

The report, titled Strong Technical Profits Bolster Momentum for Global Reinsurers, is part of A.M. Best's comprehensive analysis of the global reinsurance industry.

A.M. Best anticipates that the current hard pricing conditions in the reinsurance market will persist longer than in previous cycles. This is largely due to the ongoing high claims activity, which is increasingly driven by accumulations of medium-sized losses and secondary perils rather than isolated catastrophic events. Despite challenges, the global reinsurance segment remains well-capitalized, with solvency positions holding firm apart from some unrealized investment losses on fixed-income instruments, which have since reversed.

"The current hard cycle has not been characterized by capital depletion," said Carlos Wong-Fupuy, senior director at A.M. Best. "Unlike previous hard cycles and despite the very attractive pricing environment, new company formations have not materialized, particularly in the property catastrophe space. Disappointing results during the previous, prolonged soft market deterred potential new investors."

The report highlights the significant market changes observed after the January 2023 renewals, which followed the uncertainty caused by Hurricane Ian. A.M. Best notes that the segment continues to expand, generating returns on equity well above the cost of capital, with combined ratios reflecting strong profit margins that mitigate concerns about adverse reserve development, especially in US casualty lines.

A video discussion of the report is also available here.

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