OLDWICK, NJ, Aug. 15, 2022–(BUSINESS WIRE)–Faced with increased claims not only from natural catastrophes, but also from so-called secondary perils, as well as the impact of the pandemic and economic uncertainty, many global reinsurance companies have shifted their business mix to liability and specialty primary lines, where the Price movement is still positive according to a new am the best Report.
That Market segment report by Best, “Global Reinsurance: Firmer and improved results after moving away from property catastrophe risks,” is part of AM Best’s look at the global reinsurance industry ahead of the Rendez-Vous de Septembre in Monte Carlo. Additional reports, including AM Best’s annual ranking of the top 50 global reinsurance groups and in-depth insights into the insurance-linked securities, Lloyd’s, life reinsurance, mortgage and regional reinsurance markets, will be available in August and September.
According to this new report, a higher frequency of catastrophic events over the past five years is putting significant pressure on user confidence in modeling tools, a key component in the pricing process. In addition, reinsurers are finding that not only has the underwriting environment become less predictable, government actions have also had a huge impact on market conditions. “One of the reasons for the capital glut has been the low interest rate environment,” said Carlos Wong-Fupuy, AM Best’s senior director weighs on balance sheets in a way that catastrophe losses have not been able to do before.”
Even with rate increases, most reinsurers still do not see current property catastrophe pricing high enough to offset the ongoing uncertainty, while liability and specialty lines are more attractive as they produce comparatively more stable, predictable patterns. Social and economic inflation remain a concern, but current margins embedded in pricing adequately reward reinsurers for the risk they take. The report also notes that the long-term nature of liability lines offers the opportunity to generate investment returns and drastically reduce liquidity risk.
“Although liability and specialty insurance is not immune to accumulation risks, as seen in major events such as the pandemic or the invasion of Ukraine, on the property side they are considered more manageable and rarer compared to a natural disaster,” said Wong-Fupuy. “Secondary threats have also become more important than ever.”
AM Best continues to view the global reinsurance segment as very well capitalized and disciplined. A number of realignment initiatives have been in place for at least three years and although the pandemic slowed the results of these efforts, the global reinsurance segment achieved a combined ratio below 100% in 2021 for the first time in five years, at 96.4% , with a return on equity of 9.2%, compared to 2.3% in 2020. Airlines continue to invest significant resources to address the rapidly evolving risks they face, and most highly rated companies have demonstrated the ability , to adjust their business plans to adapt to changing market conditions and achieve sustainable profits. Reinsurers remain innovative because of their high standards in risk selection, pricing, product development and capital management. For these reasons, AM Best maintains its stable market segment outlook for the global reinsurance industry. At the same time, AM Best recognizes that the strength and relevance of each driver underpinning the outlook remains in flux, with business profiles shifting to reflect the growing complexity of the risk environment on a global scale.
“Informed uncertainty is at the core of a portfolio of insurable risks,” Wong-Fupuy said. “Ultimately, the balance between the volatility of recent experience and the perceived margins embedded in current interest rates determines risk appetite. For certain types of risk, such as natural catastrophes, this recent volatility has either become too stressful or, for some reinsurers, unacceptable.”
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=322963.
For future global reinsurance reports ahead of the Rendez-Vous de Septembre, please visit Best’s Research.
Finally, AM Best will host its annual reinsurance market briefing at the Rendez-Vous de Septembre on September 11 at 10:15 am (CEST) at the Hermitage Hotel in Monte Carlo. For more information, see http://www.ambest.com/conferences/rmbrvs2022/index.html.
AM Best is a global rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company operates in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information visit www.ambest.com.
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Carlos Wong-Fupuy, FIA, FRM
+1 908.439.2200, extension 5344
Director, Market Development
+44 20 7397 0280
+1 908.439.2200, extension 5204
Strategy & Communication