Rating agency AM Best has maintained a Stable outlook on the global non-life reinsurance segment, stating that it remains “fundamentally strong” even as it moves past the peak of the hard property market.
Several factors underpin the agency’s decision to maintain the Stable outlook on the segment.
While pricing in property coverages is clearly softening, AM Best said the market remains supportive of solid operating results. The firm also highlighted robust nominal and risk-adjusted capital positions, supported by prudent capital management plans.
Meanwhile, underwriting performance in property catastrophe covers has remained strong despite increasing competitive pressures, with reinsurers continuing to benefit from generally favourable terms and conditions and higher attachment points.
In addition, AM Best noted that elevated interest rates continue to boost investment income, providing an earnings tailwind for the segment.
The rating agency said the segment’s capital position remains exceptionally strong, projecting it to reach record levels by the end of 2026, with approximately $575 billion in traditional reinsurance capital supplemented by $130 billion in third-party capital.
AM Best continued, “The segment’s strong performance since 2023 has driven robust organic capital generation, leaving the market with ample capacity either to return capital to shareholders or to deploy it in writing business.”
However, while balance sheet strength remains favourable from a credit perspective, the rating agency noted that the imbalance created by abundant capacity, partially offset by growth in demand for reinsurance, has been a primary driver of pricing erosion in property and property catastrophe lines of business.
“To date, most reinsurers have balanced deployment of additional capacity into the market with an increasing pace of capital return,” the firm added.
AM Best also identified several further countervailing factors that could weigh on the segment’s performance. These include continued softening in property reinsurance pricing, alongside some easing of terms and conditions and the re-emergence of aggregate covers.
On this subject, AM Best stated that while there has been some measured relaxation in terms and conditions, it has not observed significantly lower retentions.
The rating agency went on, “Instead, the changes have been more focused on broadening policy wording and narrowing exclusions. These changes can have a meaningful impact to reinsurance programs. There has been an increase in available capacity for aggregate covers, which can be viewed as a possible early indication of a deteriorating market.
“While reinsurers willingness to write aggregate covers has increased to an extent, these treaties are still generally being structured with higher attachment points or to provide second-event covers, as opposed to providing earnings protection to ceding companies.
“In casualty, reinsurers have reduced capacity in higher volatility segments such as commercial auto, general liability, and excess liability, where social inflation, litigation trends, and reserve uncertainty continue to pressure results.
“Capacity remains available for well-performing portfolios, but underwriting scrutiny has intensified, particularly for US casualty business, resulting in tighter terms and higher attachment points. While pricing has been increasing, loss-cost uncertainty is expected to encourage underwriting discipline that may act to constrain capacity growth.
“Specialty reinsurance markets remain more competitive, supported by strong capitalisation, favourable earnings, and demand for diversified premium growth. Increased capacity has resulted in stable terms and modest pricing pressure across several classes, including marine, energy, aviation, engineering, and select financial lines.
“Concurrently, geopolitical tensions in the Middle East have reinforced awareness of risk accumulation across marine, aviation, energy, and political violence exposures. Despite heightened competition, reinsurers remain focused on risk-adjusted returns and underwriting discipline.”
AM Best flagged persistent social inflation as a further concern, particularly given historical reserve and pricing inadequacy in certain US casualty lines.
The firm also pointed to the growing frequency and severity of weather-related events, as well as broader geopolitical and macroeconomic uncertainty.
It added that inflationary pressures, shifting monetary policy and the potential for greater volatility in financial markets could also create further challenges for reinsurers.
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