Re/insurer ratings across Europe, the Middle East and Africa (EMEA) have begun to stabilise following difficult market conditions in 2022, according to credit ratings agency AM Best.
In a recent report released by the firm, Best notes that despite the uncertain global geopolitical environment, there has been a general stabilisation of macroeconomic conditions which is “easing the pressure” on the insurance and capital markets.
However, a combination of strong rate increases and a generally benign year of severe catastrophic weather events has reportedly led to a recovery in the results of the global reinsurance market, Best added.
The agency reveals that a majority of rating units (83%) had stable outlooks (2022: 79%) at year-end 2023, with mature markets showing a higher proportion of stable outlooks (87%) than emerging markets (79%).
Moreover, this variation is in line with expectations considering the particularly adverse economic conditions
observed in certain emerging markets over 2022 and 2023, notably across Lebanon, Tunisia, Türkiye, and Ghana.
Best also noted that positive outlooks were assigned to just 4% of credit ratings (2022: 5%). The agency explained that the reduction in positive outlooks from 2022 can largely be attributed to the upgrade of five re/insurers and the subsequent revision of their outlooks back to stable.
Meanwhile, the remaining 13% of rating units had negative outlooks or negative implications at 31 December 2023 (2022: 16%).
Eight outlooks were revised from stable to negative in 2023, which is less than the prior year total of 12, with pressure arising from weakened balance sheets generally driving the negative actions.
Elsewhere, Best highlighted that there were eight upgrades in 2023 (2022: seven), five of which were tied to mature market companies.
The agency did add, however, that prudent risk management practices underpinned the resilience of balance sheet strength and operating performance during the volatile global interest rate environment in 2022 and the first half of 2023.
Further, Best also showcased how the year 2023 proved to be a considerable one for the reinsurance market, with much of the capital losses experienced in 2022 recouped.
Looking back at the January 2023 reinsurance renewals, which Best hailed was “disorderly”, it mostly confirmed the presence of a hard reinsurance market.
Reinsurers were able to achieve significant increases to attachment points, especially on property programmes, which along with higher rates, significantly improved underwriting margins.
But, despite 2023 being another year which saw over USD $100 billion of global insured catastrophe losses, Best noted that reinsurers were generally able to avoid losses escalating from many of the associated events as there were few large catastrophes in geographies with high insurance penetration.
As a result, the increase in attachment points meant that many losses were not falling on the reinsurance market.
Even with much more orderly renewals in January 2024, participants have not indicated any softening in market conditions, Best added.
