Positive pricing momentum leads the list of reasons why rating agency AM Best has maintained a positive view on the non-life reinsurance sector globally.
AM Best has released its report on the outlook for global non-life reinsurance, maintaining a stable view on the market’s prospects.
The rating agency said this was driven by three factors primarily.
Firstly, the market continues to benefit from positive pricing momentum and enhanced market discipline continue, including tighter terms and conditions.
Secondly, many carriers have materially shrunk their property catastrophe reinsurance exposure, despite improved rates and diversified further into primary and casualty lines of business.
This realignment should diminish the inherent volatility of underwriting results, AM Best said.
Thirdly, buyer demand for reinsurance capacity continues to grow, AM Best observed.
The rating agency added that primary carriers “appear to have generally accepted the new norms of reinsurance pricing and structures”.
AM Best also listed several counter-balancing factors that contribute to overall stability.
Heightened natural catastrophe activity continues to test investors’ risk tolerance levels, the rating agency said.
This is being compounded by geopolitical and economic uncertainties, the ratings firm said.
Furthermore, new capital is cautious and so far has not been forthcoming, despite the improving pricing trends and tighter terms and conditions.
Similar constraints are seen in the market for insurance-linked securities (ILS), particularly for retrocessional capacity, AM Best added.
Lastly, inflationary pressures and the risk of recession are making profitability targets more challenging over the long term.
The report can be downloaded, here.