AM Best holds its negative outlook for the reinsurance sector

AM Best yesterday held its Monte Carlo RVS briefing, ‘Thoughts on the Global Reinsurance Markets’, with Vice President of reinsurance Robert DeRose, managing director of analytics for Asia-Pacific Moungmo Lee, and managing director of analytics for EMEA Greg Carter on the panel.

During what can be described as a frank and insightful session, AM Best cited significant ongoing market challenges as blockers to reinsurance, which translates as “negative rating pressures”.

AM Best also cited broader T&Cs, low investment yields and the convergence of capital as factors that are adversely impacting risk adjusted returns over the longer term.

It was noted that reinsurers are responding to these challenges by utilising capital market capacity in order to reduce net ‘probable maximum loss’ (PML) for peak zones as a percentage of capital.

According to the AM Best, further market consolidation – either via M&A or strategic alliances with alternative capacity will likely be the response to the current market conditions.

Those firms that function on both primary and reinsurance platforms will benefit from increased cycle management capabilities.

Ultimately, AM Best highlighted that the pressures faced by the industry on investment yields and underwriting margins will impact negatively on the reinsurance sector’s financial strength. n