AM Best’s ‘stable’ outlook reflects signs of resilience for reinsurance sector

A few years ago there was plenty of talk about alternative capital being a major threat to the sector and something that was going to radically transform it. That view has changed, Robert DeRose, senior director, Global Reinsurance Ratings and Greg Carter, managing director, Analytics EMEA & AP, at AM Best, told Monte Carlo Today.

“It is now perceived as less of a threat and has almost become an accepted part of the capital structure it’s an evolution to a more efficient capital structure for the industry and an integral part of the capital,” said Carter.

In terms of investor appetite, DeRose perceives investors as having taken a pause in light of the events of the past few years.

“There is still a considerable amount of capital on the sidelines that can be available, should an opportunity present itself, and I think that would happen if the opportunity was the right one,” he said.

“Investors are being more selective in terms of who they are looking to partner with.”

Another development noted by DeRose was more favourable pricing momentum, especially in the property cat space, and the fact that it might be spreading to other longer tail classes of business.

“In the insurance space there is every reason as its stands today to be optimistic about improved profitability going forward,” he said.

“One thing we are not certain about is the sustainability of it, and the wild card there is the alternative capital that could come in and take the momentum out.”
However, AM Best moved its outlook on the sector from “negative” to “stable” in December 2018.

“We moved that to stable to emphasise that we felt the industry has learned to cope with the excess capacity. The discipline that appears to be emerging provides a bit of a floor to that—with the caveats in terms of the potential for alt capital to come in and continue that downward pressure on pricing,” Carter concluded.