AM Best calls for underwriting discipline in January renewals
AM Best has called on European re/insurers to demonstrate underwriting discipline and a continued improvement in rates and terms in 2020.
The five-year average combined ratio for AM Best’s reinsurance composite is now 97.6 percent, and the five-year return on equity (ROE) is 6 percent.
“AM Best does not consider that a reasonable return on capital given the risk reinsurers take on,” said Mathilde Jakobsen, director of analytics at AM Best (EU) Rating Services.
There is evidence of improved discipline in the market, however.
“Reinsurers are more careful with where and how they allocate capacity, putting through rate increases and letting unprofitable business go at renewal when they can’t get the increases they want,” said Jakobsen.
“What is harder to see is whether they are getting the appropriate rate for the new business they write. Where there is some pullback due to lack of profitability, others step in, attracted by the opportunities. Although reinsurers are more careful with their capacity, it is still in abundant supply, which will dampen the rate increases we should expect.”
Renewals at the start of 2019 left reinsurance rates essentially flat, noted Jakobsen, before rates hardened at the April 1 renewal and at the mid-year US renewals, which included more loss-affected accounts.
The agency completed transferring its ratings business for EU27 entities excluding the UK to its new Amsterdam office in Q1 2019. Teams in Amsterdam are now responsible for that business.
AM Best said it had chosen to locate in Amsterdam due to the city’s well-established financial centre, strong pool of talent and good transport links to the key European locations where its clients are based.
The Amsterdam office complements regional offices in London, Hong Kong, Singapore, Dubai and Mexico City, and its world headquarters in the US.
AM Best said the new office ensures its ratings “can continue to be used for regulatory purposes following a UK exit from the EU”.
