Rating agency AM Best has maintained its stable market outlook on the global reinsurance industry for 2020, citing a stabilised pricing environment, alignment with third party capital, and support from life segment results.
Analysts felt that reinsurers in the non-life segment were also gaining more favourable momentum in the face of persistent competitive market conditions.
However, while rates in this segment have improved modestly over 2019, AM Best does not consider pricing to have kept adequate pace with the changing risk dynamics.
This is illustrated by loss development on events such as Hurricanes Irma and Maria, Typhoon Jebi, and more recently Hurricane Dorian, it said.
Property catastrophe pricing is also still being driven by the availability of third-party capital and is not as heavily influenced by traditional reinsurance companies.
That said, AM Best believes traditional capacity has become more closely aligned with third-party capital through joint ventures, retrocession, and direct ownership, which should serve to more closely align return objectives for the market overall.
Additionally, while alternative third party capital remains disruptive in terms of pricing, it also represents a benefit in the form of stabilised earnings of rated balance sheets due to tail risk being assumed by this capital.
In other positive developments, demand for non-life reinsurance increased in 2019 due to primary insurers’ recent loss experience and a moderating global expansion.
An uptick in demand from government risk pools, such as the NFIP in the US, as well as new opportunities in cyber, mortgage, and other emerging risks should also allow for greater utilisation of market capacity and help relieve the ongoing supply/demand imbalance in the market.
AM Best noted an overall improvement in non-life market conditions, but pointed to some looming concerns, such as insufficient rate adequacy on certain US casualty lines, a decline in the benefit of reserve releases, and a pervasive low interest rate environment.
The collective effect of these factors will require underwriting discipline, and failure to react to these pressures could adversely affect the segment, analysts warned.
The global reinsurance market also continues to be buoyed by the stability of the life segment, in which the leading carriers maintain solid market positions, with moderate premium growth and strong earnings, AM Best said.
Here, the challenging economic environment and the growing ease of access to external financing has supported growing interest in the assumption of legacy blocks of business such as fixed payout annuities and pension risk transfer liabilities, particularly in the US and UK markets.
The opportunity has given rise to the formation of many new companies, AM Best noted, some of which are capitalised partly by established reinsurers.
Reinsurance News reported last month that AM Best was likely to maintain its stable outlook on the reinsurance industry in 2020, after Senior Managing Director and Chief Rating Officer Stefan Holzberger commented that new business opportunities and alignment with alternative capital were offsetting negative trends.
