AM Best: Global reinsurance outlook stable
The outlook for the global reinsurance sector remains stable, AM Best said yesterday.
The rating agency said that the stability was driven by “continued strong risk-adjusted capitalisation, judicious enterprise risk management practices and a relatively stable pricing environment across a broadening spectrum of business classes.”
Given the uncertain and turbulent global macroeconomic conditions facing the sector, Best said these factors should help sustain reinsurers’ overall financial position over the longer term.
The company also said that disciplined underwriting practices had helped reinsurers offset a continued deterioration in investment income.
After a series of large catastrophes in 2011, for the first nine months of 2012 reinsurers rebounded to produce an average return on equity in the low double-digit range.
Despite the catastrophes that occurred during the fourth quarter of the year, including Superstorm Sandy, “reinsurers are still well positioned to put forward an acceptable level of underwriting and overall profit for the full year,” the company said in the statement.
From a capital perspective, AM Best said US and Bermuda reinsurers were well capitalised and capable of absorbing significant losses from a combination of events.
AM Best expects reinsurers to record reasonable organic capital growth in 2013, tempered by active capital management strategies. However, it was also concerned that the stabilisation in reinsurance pricing may be short lived.
However, Best said the recent stabilisation in reinsurance pricing may be short-lived.
“While Superstorm Sandy had little effect on pricing going into the January renewal, some regional accounts that were impacted did experience price increases,” Best said in the statement. “Furthermore, while reserve releases have helped to bolster profits and will likely continue to do so, this crutch will provide less and less support over time,” Best added.
The continued low interest rate environment, however, “appears to be reinforcing a focus on underwriting discipline,” Best said.
Meanwhile, AM Best has maintained its negative outlook for the commercial lines sector as a result of a competitive market, less favourable loss-reserve development, low returns and slow economic growth.
The rating agency said these factors would combine to produce more negative rating actions than positive actions in 2013.
The sector has had a negative outlook since 2011.
AM Best said: “For commercial lines insurers, many are still trying to recoup the billions of dollars of insurable risks that quickly evaporated during the financial crisis beginning in late 2008 and its slow recovery. Other commercial insurers remain determined to put their capital to use.”
But AM Best predicted that sustained price momentum will continue this year, as commercial insurers combat the difficult operating environment through price increases.