Reinsurers hold firm as market recalibrates, says AM Best

As industry leaders gather in Monte Carlo for the annual Rendez-Vous de Septembre, AM Best’s latest research highlights strong technical results and suggests disciplined underwriting.

The rating agency framed the reinsurance market in terms of a recalibration since the January 2023 renewal period.

The report, “Reinsurers’ Disciplined Capital Deployment and Underwriting Remain Key Foundations”, obseerved “risk-adjusted capitalisation remains robust, reflecting both retained earnings and disciplined capital management”.

It also noted “strong underwriting profitability is being augmented by a surge in investment income amid elevated interest rates”.

Capital strength, disciplined deployment

Capital levels remain near record highs, the rating agency emphasised.

Traditional reinsurance capital stood at around $500bn by the end of 2024, buoyed by retained earnings and limited erosion from catastrophe activity.

This expansion occurred without the wave of new entrants that typically follows hard markets.

“The absence of material new global reinsurance entrants ensures structural market discipline is maintained, distinguishing the current environment from previous market cycles,” AM Best said.

The higher interest rate environment has also improved returns.

“Underwriting profitability remains strong, augmented by a surge in investment income due to elevated interest rates,” the report added.

Reinsurers shifted allocations towards cash and short-duration bonds to capture yields, locking in steady income streams that bolstered balance sheets.

These factors support a positive outlook.

“The structural and cyclical factors underpinning the market continue to justify the Positive outlook, which speaks not just to performance but also to the resilience and adaptability of the global reinsurance segment in a time of transition.”

Structural shifts

The January 2023 renewals marked a turning point. “That renewal marked a decisive shift in how risk is priced, shared, and retained,” AM Best observed.

Across property catastrophe lines, reinsurers imposed “higher attachment points, tighter terms and conditions, and across-the-board rate increases.”

These changes have been sustained into subsequent renewals. The European “big four” reinsurers, Swiss Re, Munich Re, Hannover Re and SCOR, posted a combined ratio of 86.4% in 2024 under IFRS 17 reporting. In the US and Bermuda, the composite delivered 89.5%, both levels indicating strong profitability.

“The underwriting discipline instilled over the past two-plus years has significantly improved reinsurers’ ability to navigate this transitioning market,” the report said.

Challenges persist, AM Best warned.

“Social inflation has significantly impacted casualty reserve development, particularly in the United States, while climate change has driven an increase in the frequency and severity of natural catastrophes,” said the report.

Geopolitical volatility and trade disputes were also cited as factors increasing claims costs, disrupting supply chains and complicating pricing.

The report also reflected accounting shifts.

“The most significant change among IFRS 17 reporters this year is Swiss Re’s adoption of the accounting standard, after previously reporting under GAAP. With this change, Swiss Re moved from first among the non-IFRS 17 reporters to first among IFRS 17 reporters, moving Munich Re from the top spot to second,” the study said.

Despite these pressures, AM Best expects reinsurers to maintain momentum.

“The underwriting discipline instilled over the past two-plus years has significantly improved reinsurers’ ability to navigate this transitioning market,” AM Best added.