Momentum for increasing reinsurance rates following last year’s string of natural disasters could be short-lived, resulting in only a brief interlude in a continuing soft market, according to a report on the industry by analysts from rating agency AM Best.AM Best has a stable outlook for the global reinsurance industry and the report finds that the industry has been remarkably resilient in standing up to the headwinds of 2011.Globally, the sector recorded an underwriting loss, but the report found that the Bermuda and US companies were harder hit, in relative terms, than their competitors in Europe.Rising rates, particularly in catastrophe lines, have been seen, especially in regions impacted by last year’s disasters. Bermuda’s property and catastrophe reinsurers are well placed to benefit, but will the trend continue?“History has shown that the market has a short memory, and if the sting of recent loss events quickly fades, the soft market may continue,” states the report, which is entitled “Reinsurer resilient against waves of catastrophes, economic uncertainty”.“In that scenario, the segment’s capital strength would slowly erode, and AM Best would consider revising the ratings outlook to negative, as pressure on ratings would be expected to mount.”However, on the plus side for reinsurers, the report notes speculation that the trend of falling demand for reinsurance in recent years, as a result of greater retention of exposure by primary insurers, may be about to reverse.“The recent spike in global catastrophe activity, along with an increased level of conservatism in catastrophe models, appears to have changed the perception of risk for many primary companies, particularly in the United States,” the report states.The clear message is that global reinsurers remain remarkably well capitalised, even after the second-highest year on record for catastrophe losses and sustained low interest rates that have suppressed investment income.Disasters including the Japan earthquake and tsunami, earthquakes in New Zealand, flooding in Thailand and severe weather in the US, resulted in insured losses totalling around $110 billion, of which global reinsurers’ share was about $50 billion.The European reinsurers include Munich Re, Swiss Re, Hannover Re and Scor, which between them have 62 percent of the market in terms of gross premiums written, according to the AM Best composite.Their return on equity (ROE) last year of 6.6 percent showed they fared better than the Bermuda/US group, which recorded an ROE of one percent. During the previous two years, Bermuda had outperformed the Europeans on this score.“While underwriting performance for both segments was comparable, the impact on capital by company indicates that Bermuda-based companies absorbed a larger relative share of shock losses in 2011 than did the Europeans,” the report notes.The authors, AM Best’s Robert DeRose, Greg Reisner and Scott Mangan, suggested the reason for this: “Bermuda, while a market for a broad spectrum of risks, is still predominantly a property catastrophe market and therefore more prone to the impact from catastrophe shock losses, regardless of where they occur.”One reason why the industry finished the year with roughly the same level of capital that it started with, is that it has implemented lessons learned from previous high-loss years, adds the report.Best notes that, since 2005, “there has been a continuing evolution in enterprise risk management (ERM), which has strengthened overall risk management. It has encouraged prudent capital management strategies, which prepared companies for potential accumulation of risk, evidenced by the frequency of large losses occurring across geographically dispersed regions of the world.“Simultaneously, there have been advances in catastrophe and economic capital models. These tools significantly helped a reinsurer’s ability to better allocate capital within complex risk portfolios.”While headwinds remain, Best believes the overall global reinsurance sector remains well capitalised and capable of absorbing significant losses from a combination of sources.