AM Best shifts global reinsurance outlook to stable after soft 1/1 renewals

AM Best has dropped its outlook for the global reinsurance segment down to stable from positive, citing an acceleration in the softening of property reinsurance pricing, alongside structural and macroeconomic pressures.

The ratings agency said its revision reflected “accelerated softening in property reinsurance pricing, accompanied by modest relaxation of some terms and conditions”.

It also highlighted “persistent social inflation and corresponding historical reserve and pricing insufficiency in certain large subclasses of casualty lines of business”.

Catastrophe activity remained a central concern, with AM Best pointing to “continued elevated frequency and severity of weather-related events, underscored by six consecutive years of global insured catastrophe losses exceeding $100bn”.

Broader economic uncertainty also featured in the outlook change, including “inflation pressures, shifting monetary policy, and potential volatility in financial markets”.

Despite these headwinds, AM Best said several counterbalancing factors continue to underpin the segment’s credit fundamentals.

“Reinsurers’ risk-adjusted capital positions remain robust, bolstered by retained earnings and prudent capital deployment,” the report said.

While competition has intensified in property catastrophe reinsurance, the agency said discipline has largely been maintained.

“Although competitive conditions have increased in property catastrophe covers, reinsurers remain disciplined with terms and conditions and attachment points largely intact,” it said.

AM Best added that “property exposures are still being priced at levels that suggest technical adequacy on average”.

Investment income continues to provide meaningful support to earnings.

“Elevated interest rates continue to amplify earnings, complementing underwriting results,” the report said.

The agency also pointed to favourable supply side dynamics.

“Limited new market entrants help preserve rate integrity and prevent new capacity from eroding underwriting margins,” it said.

Looking at recent market dynamics, AM Best said the move to a stable outlook reflects “increasing pressure on property pricing, which may challenge the segment’s ability to sustain the very strong operating performance that the sector has achieved for the past three calendar years”.

It said the January 1 2026 renewals saw “property reinsurance rates fall between 10% and 20%, with the largest decreases observed on non-loss-impacted accounts”.

However, AM Best said earlier structural improvements continue to hold.

“The significant improvements in terms and conditions that reset following the 2023 renewals are proving durable,” it said.

The agency added that it has “not observed significantly lower retentions on reinsurance programs”.

Instead, changes have been “more focused on broadening policy wording and narrowing exclusions”.

Despite ongoing challenges, particularly in casualty reinsurance, AM Best said overall conditions remain supportive.

“While the reinsurance pricing cycle is clearly softening in property lines, overall market conditions support underwriting profitability and solid overall operating performance in 2026,” the report concluded.

It added that the sector is expected to generate returns sufficient to cover its cost of capital, “supported by robust investment income and profitable underwriting performance sustained by continuing careful risk selection and portfolio allocations within the context of an increasingly challenging pricing environment”.