New reality for reinsurance as abundant capacity shapes market
The reinsurance market is now facing a new reality shaped by abundant capacity from traditional and alternative sources.
This is according to rating agency AM Best in its latest report on the global reinsurance industry, It is Not Your Father’s Reinsurance Market Anymore – The New Reality.
The report added that other contributing factors to the change include low interest rates and intense competition which is driving thinner margins as demand for reinsurance cover diminishes.
Robert DeRose, AM Best vice president, said: “The new reality for the reinsurance market looks to be more of an industry where returns are less impressive and underwriting will have to become a larger contributor to profits and returns.
“This will lead to more conservative risk selection, more diversification of product offerings, a wider geographic reach and conservative loss picks.”
DeRose said that the rating agency is holding its outlook for the reinsurance sector at negative, due to the significant ongoing market challenges that will hinder the potential for positive rating actions over time and may translate into negative rating pressures.
The report added that mergers and acquisitions (M&A) activity is expected to continue, driven by a market which is becoming increasingly more competitive and more challenging.
“Although, as all market players look to become more efficient, be it disintermediation or going directly to sources of risk, this tug of war will result in fewer hands in the pot – ultimately making it better for the purchaser of protection,” said the rating agency.
