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AM Best stable on global reinsurance despite ongoing uncertainties

31st August 2021 - Author: Charlie Wood

Despite improved pricing trends across most business lines, AM Best says uncertainty and abundant capital has resulted in the issuance of stable outlook for the global reinsurance segment.

AM BestFurther compounding this were the unprecedented events of 2020, dominated by the COVID-19 pandemic and higher frequency of medium-sized catastrophe losses.

AM Best believes global reinsurers generally have been able to absorb the pandemic’s shock despite material losses.

It’s noted that, while their balance sheets remain resilient, businesses have been renewed under more restrictive terms and conditions and at better rates.

After several years of struggling to meet their cost of capital, key players are seen by analysts as starting to turn the corner. However, considerable uncertainty about sizable COVID-related claims reserves— most of them incurred but not reported (IBNR)—which will take years to develop, remains.

RMS

Unexpected correlations in a highly interconnected world increasingly dependent on technology is considered a driving reason as to why risk in general has become more difficult to model and price and therefore (re)insure.

New capital—so far still modest and being deployed cautiously—continues to enter the market. A lack of investment alternatives in the low interest rate environment is seen as driving the growing focus on underwriting results.

Analysts state that a change in economic trends, highly dependent on unpredictable government policies, may drastically change investors’ expectations.

Furthermore, AM Best’s report notes how the global commerce and business environment is rapidly evolving, becoming increasingly interconnected and dominated by intangible assets.

Reinsurers are being advised to be flexible and innovative in order to maintain their relevance within the broader economy. A higher share of uninsurable risks—because they are considered non-measurable, non-manageable, or systemic— translates into a smaller role for the re/insurance industry.

Historically, the global reinsurance segment has endured numerous challenges from natural/ man-made catastrophes, low interest rate environments, adverse reserve development to intense competition. Despite these challenges, AM Best analysts note how it has always met its claims-paying ability.

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