Reinsurers' strong enterprise risk management (ERM)frameworks are essential for the sector to navigate the current challenging environment, according to S&P Global Ratings.
Reinsurers are facing headwinds including strain on underwriting from lower prices in the property catastrophe and specialty markets, growing competition from alternative capital sources, lower investment income, and risks related to extreme weather and evolving regulations, the ratings agency noted.
ERM contributes to disciplined risk selection and conservative underwriting and asset portfolios, despite lower returns, the ratings agency said.
Sridhar Manyem, credit analyst at S&P Global Ratings, said: "We view reinsurers as well-equipped to weather the headwinds they face, as reflected in our broadly stable outlook on the sector.
"Nevertheless, although we view the developments in ERM favorably, we are aware that these frameworks and new techniques have not been tested in recent years by historically stressful events, the likes of hurricanes Katrina, Rita, and Wilma in 2005, the reserve strengthening in the late 1990s, or periods of high inflation."
S&P, Insurance, Reinsurance, Enterprise Risk Management, North America