A new AM Best report has warned that the global reinsurance segment is at a “critical inflection point”, with strong earnings since 2023 pushing capital to record levels and intensifying competition, particularly in property, raising questions over whether underwriting discipline will hold or irrational competition will emerge, leading to another traditional soft market cycle.
The rating agency’s new report, Global Reinsurance at an Inflection Point: Can Discipline Survive the Temptation of Record Capital?, is its first look at the industry ahead of the Rendez-Vous de Septembre in Monte Carlo.
According to AM Best, the global non-life reinsurance segment continues to benefit from strong capitalisation, favourable earnings generation, and supportive market conditions.
“However, unlike previous hard markets, capital among these reinsurers has largely accumulated within existing organisations rather than through a wave of new entrants,” the rating agency explained.
With this in mind, many reinsurers now reportedly possess “multiple opportunities” through which capital can be deployed, reducing the need to pursue growth solely through single-channel reinsurance underwriting.
As per the report, casualty reinsurance increasingly represents one of the industry’s most important strategic concerns.
“Some organisations are capitalising on casualty growth opportunities, given enhanced rates to bolster overall group premium and revenue, while others have adopted a more cautious approach given heightened uncertainty surrounding social inflation, litigation funding, larger jury awards and escalating adverse legal environments,” AM Best stated.
Dan Hofmeister, director, AM Best, added, “Casualty exposures often develop over many years, meaning that decisions being made today may not be fully understood until well into the next decade.
“Consequently, maintaining pricing discipline in casualty business may ultimately prove as important as preserving discipline within the property catastrophe market.”
Meanwhile, AM Best said it expects the non-life reinsurance market to maintain favourable earnings profiles barring an outsized catastrophe event.
“However, a more important question is whether reinsurers can preserve the discipline that produced these profitable results of recent years,” the rating agency said in its new report.
Michael Lagomarsino, senior director, AM Best, commented, “If underwriting discipline and pricing integrity can be maintained despite record levels of capital, the industry may indeed be in the midst of a meaningful evolution of the reinsurance market.
“If not, history may once again demonstrate that the fundamental dynamics of supply, demand, and competition remain remarkably persistent.”
