The rating agency said uncertainty is mounting for reinsurers, despite “generational” hard market opportunities.

AM Best has maintained its market segment outlook for the global reinsurance segment at stable.

Road to 2024 Big Question

The ratings firm cited substantial rate improvement, primarily in property lines, with higher average attachment points expected to result in widening profit margins.

This is according to a Best’s Market Segment Report, called, “Market Segment Outlook: Global Reinsurance”.

“The current global reinsurance market has been referred to as a “generational” opportunity for reinsurers. Pricing trends and restrictions in terms and conditions are at all-time highs,” AM Best’s report concluded.

“However, uncertainty continues to mount. Aside from the convergence of social inflation, climate change, and lack of insurability, reinsurers need to adapt to a high inflationary environment, something many of their actuaries and underwriters have never experienced,” the report continued.

“Uncertainty surrounding the markets ability to quickly adapt to these new market dynamics and capitalize on pricing remains elevated as well,” the study added.

Positive factors supporting its outlook include the following:

  • Substantial rate improvement primarily in property lines, with higher average attachment points expected to result in widening profit margins
  • Increased demand for coverage due to heightened catastrophic loss activity, as well as general economic uncertainty
  • Rising investment income, as new money yields on fixed-income investments have more than doubled
  • Strong demand for life and annuity reinsurance from US-domiciled insurers, as well as continued strong flow of capital to support new L/A reinsurance entrants.

Countering these were several negatives:

  • Persistent, growing uncertainty about underlying risks, including frequency and severity of weather-related activities and evolving risk profiles
  • Cautious new capital, despite improved market conditions
  • Concerns about economic and social inflation
  • Higher post-Covid-19 mortality in certain markets.

Positive outlook for MGAs

AM Best said it is maintaining its positive outlook for the delegated underwriting authority enterprise (DUAE) segment, otherwise known as managing general agents (MGAs)

The ratings firm cited the segment’s sustained growth and performance on a global basis and the ongoing ability to address underserved and emerging risks.

An additional factor partly contributing to the positive outlook is the technology and talent within the segment that continue to drive innovation, according to another report, called “Market Segment Outlook: Delegated Underwriting Authority Enterprises”.

“The positive outlook in the delegated underwriting authority enterprise market is reflective of a sustained growth seen globally over the last several years and expectation for continued growth and profitability, and then near- to mid-term,” said Riley Parnham, financial analyst, AM Best.

“Despite certain capacity constraints experienced over the last year, and best research suggests that DUAEs are expanding their share of premium written across the broader insurance market while new entrants keep growing in number,” he continued.

The market has more than doubled in the past decade on a global basis, he revealed, fuelled by the hard market. In the US alone, AM Best identified that MGAs have generated premiums over $65bn as of 2022, expanding market share accordingly.

Furthermore, recent growth in the delegated underwriting segment has been attributable to the role MGAs play in insurance distribution outside the US, specifically in Europe and Asia Pacific, Parnham noted.

“Going forward, we expect much of the same in terms of trends we’ve seen over the last few years. We expect to see continued growth on a global basis,” he said.

“Established DUAE players in the US and UK are looking to extend their operations by growing and diversifying into other countries. This has led to several new startups and acquisitions of existing businesses by DUAE groups based outside the US. AM Best expects this trend to continue to drive further growth in global markets,” Parnham added.