Hardening trend is expected to continue in 2022, albeit at modest pricing gains

AM Best is maintaining a stable outlook for the global non-life reinsurance sector. It notes that enhanced underwriting discipline and substantial cumulative rate increases have improved underwriting opportunities for almost all non-life reinsurers.

The increased demand for reinsurance capacity has allowed smaller reinsurers to play a greater role than at any time in recent memory.

However, underwriting results have been affected by more frequent catastrophic events, especially secondary perils, which are exacerbated due to disruptions in the global supply chain and labour shortages, according to the rating agency.

In particular, secondary perils such as Flood Bernd in Germany and Winter Storm Uri in Texas contributed to another year of substantial catastrophe losses.

For this reason - and despite the entrance of new capacity - the hard market is expected to continue for the foreseeable future. New market entrants, robust capitalisation and further alignment with third-party capital providers’ interests has done little to dampen pricing momentum within the property catastrophe business.

Within casualty lines, the impact of social inflation is expected to drive higher loss costs, with underwriters adjusting pricing as a result. Global economic inflation could offer some relief on the investment side of the balance sheet, but Best expects that reinsurers will “concentrate on underwriting profits rather than investment float”.

“AM Best expects modest pricing gains through the remainder of 2022 after the heightened loss activity dragged underwriting results in 2021,” it concludes. ”Rate improvement may disappoint in certain layers of catastrophe lines, where the presence of alternative capital continues to mute pricing gains.”