AM Best is maintaining a stable market segment outlook for the global reinsurance segment, citing in part the ongoing positive pricing momentum driven by rising loss cost inflation, enhanced underwriting discipline, including tighter terms and conditions, and a growing demand for reinsurance capacity.

The growing demand for reinsurance is being bolstered by primary carriers looking for stable results and capital efficiency in an uncertain environment, according to AM Best in a report, titled “Market Segment Outlook: Global Reinsurance.”

The report also cites some negative factors in the segment such as historically low interest rates on fixed-income investments that are in most cases below loss cost inflation, and adverse loss reserve development in casualty lines of business due to sustained social inflation.

AM Best expects reinsurance pricing to improve for most business lines at the upcoming Jan. 1, 2022 renewals and into the new year, albeit likely at a slower pace than in the past few years.

The impact of losses from floods in Europe and Hurricane Ida in the United States ended re/insurers’ hopes for a relatively benign year for natural catastrophe losses in 2021, the report noted.

“Unfavorable loss cost trends and high catastrophe activity continue to dampen returns on capital, which should keep the industry focused on the need to push for more rate increases,” said Greg Dickerson, associate director, in a statement.

Social inflation concerns continue to prompt significant pricing increases in the casualty lines of business, and some of the same issues affecting liability coverages may be creeping into the property lines. The report said this trend has been most apparent in post-catastrophe claims settlements, for which claims inflation has exceeded the usual levels expected due to surges in demand, coupled with shortages of labor and materials needed to complete repairs.

The report cited the positive factors that are affecting the reinsurance sector as follows:

• Ongoing positive pricing momentum driven by rising loss cost inflation, natural catastrophe activity, and historically low investment returns
• Enhanced market discipline, including tighter terms and conditions driven by an uncertain economic environment and climate-related catastrophic events
• Growing demand for reinsurance capacity as primary carriers look for stable results and capital efficiency in an uncertain environment
• The report noted that the increase in demand for reinsurance capacity has allowed smaller reinsurers a greater role than they have had in recent memory
• Wariness from third-party capital after several years of significant property catastrophe events, coupled with commodity and labor demand surges and near-term inflation
• A life reinsurance market concentrated in a few well capitalized companies, which partially mitigates competitive pressure
• Manageable COVID-19 pandemic related mortality experience despite negative developments in 2021.

Negative factors include the following:

• Historically low interest rates on fixed-income investments that are in most cases below loss cost inflation
• Adverse loss reserve development in casualty lines of business due to sustained social inflation
• Losses and expenses for property lines of business affected by disruptions in the global supply chain and labor shortage issues
• Significant property catastrophe activity driven in part by climate trends, along with the rise of secondary perils, raising challenges with respect to accurate modeling.

Source: AM Best

*This story ran previously in our sister publication Insurance Journal.