AM Best maintains stable outlook on ‘fundamentally strong’ global reinsurance segment

Global credit rating agency AM Best has maintained its stable outlook on the global non-life reinsurance segment, assessing that the market “remains fundamentally strong” despite clear softening in property, challenges in certain classes of casualty in the US, and an overall competitive landscape.

Back in January, AM Best revised its global reinsurance sector outlook to stable from positive, driven by the accelerated softening of property reinsurance rates.

Ahead of the annual meeting of the reinsurance industry in Monte Carlo this week, the rating agency has maintained its stable sector outlook, based on numerous factors, including a pricing environment that is still supportive of solid operating results, strong nominal and risk-adjusted capital positions, sustained underwriting performance in property cat covers, and higher interest rates which bolster investment income for firms.

AM Best highlights that although the reinsurance pricing cycle is past the peak of a protracted hard property market, most reinsurers have maintained underwriting discipline with higher attachment points and tighter terms and conditions.

Of course, projected margins have narrowed when compared to the very strong returns seen over the past few years since the property market reset in 2023, but despite rate softening, AM Best finds that property exposures are still being priced at levels that remain above technical adequacy in the aggregate.

Michael Lagomarsino, senior director, AM Best, commented, “Balance sheet strength across the non-life reinsurance segment is favorable from a credit perspective, although the imbalance created by abundant capacity, partially offset by growth in demand for reinsurance, has been a primary driver of pricing erosion in property and property catastrophe lines of business.”

Outside of property, the rating agency notes that some classes of casualty business in the US are still impacted by an unfavourable legal and regulatory environment, with the risks associated with systemic legal abuse and subsequent inflationary pressures expected to persist. As a result, AM Best says that reinsurer appetite for casualty business might be constrained.

Another factor to consider is that capital positions remain very strong, with segment capital expected to hit a new high at year-end 2026, comprised of USD 575 billion in traditional capital and USD 130 billion of alternative capital. AM Best states that third-party capital has continued to perform strongly, supported by record cat bond issuance in the first half of the year.

According to AM Best, that “momentum could sustain investor interest and add further competitive pressure to property catastrophe pricing, particularly in more remote layers of coverage.”

As ever, catastrophe activity is a key driver of the non-life reinsurance segment’s results, and while the first half of this year was relatively benign, the industry has now recorded six consecutive years of global insured nat cat losses of more than USD 100 billion, which highlights the increased frequency and severity of events.

Additionally, the rating agency warns that geopolitical and macroeconomic conditions are becoming increasingly important factors for reinsurers, which can lead to higher claims costs across property and specialty lines.

“AM Best’s Stable outlook reflects a market that remains fundamentally strong even as it moves past the peak of the hard property market. Over the next twelve months, record capital, sustained underwriting discipline, and supportive investment income should keep returns at or above the cost of capital, positioning the segment to absorb accelerating property rate softening, US casualty reserve uncertainty, and ongoing catastrophe and macroeconomic risks while sustaining profitability,” says the company.