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AM Best upgrades as reinsurance rates settle

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The non-life reinsurance pricing environment has stabilised, but rates are still below long-term adequacy levels, AM Best warns.

The ratings agency has upgraded its outlook for the global reinsurance sector from negative to stable.

It says much of the improvement is due to the growing role of third-party capital.

Capital consumption and earnings volatility declined partly due to using third-party capital in retro programs. There is a growing alignment between traditional and third-party capital. The industry believes third-party capital will “hold the line” on future return expectations following catastrophe losses incurred this year and last year.

Non-life reinsurance pricing has settled at the bottom of its cycle for the near future, AM Best says.

And the glory days of a robust pricing environment may be gone.

Property catastrophe pricing is still driven by the availability of alternative third-party capital, and is not as heavily influenced by traditional reinsurers. Traditional capacity is even more closely aligned with alternative capital.

Alternative third-party capital is expected to grow, albeit more slowly following the frequency of loss events last year and this year.

Demand for non-life reinsurance is expected to increase along with economic growth in the US, AM Best says.