Global reinsurance remains challenging: AM Best

The global reinsurance market remains challenging, according to AM Best.

The rating firm said that despite this, global reinsurance composite is still expected to post reasonable results for 2015, aided by the lack of large US cat losses, continued capital management strategies, and favourable reserve releases, the latter which is unsustainable over the long-term.

AM Best said conditions will remain competitive and challenging, as primary companies are expected to continue retaining more business and/or seek better terms and conditions for sharing their profitable business.

Margin compression will likely continue also, according to the firm, however it said there is evidence that the pace of deterioration in reinsurance rates, particularly in high layer US property catastrophe, has begun to slow.

Third-party capital continues to seek a larger piece of the pie, according to the firm, but the speed of capital market capacity entering the market, seems to have slowed as compared to the prior year and some collateralized markets have held capacity flat, unable to find suitable opportunities. AM Best said that this is a healthy response to the current market environment.

“The global reinsurance sector remains by all accounts over-capitalised,” said the firm.

“The reinsurance market has proved for some time to be a bit more resilient and disciplined than other sectors. However, as most companies continue to indicate that returns are lower for new business booked and intense competition is leading to reductions in premiums and a decrease in margins for certain lines of business, the need for disciplined underwriting should remain the focus.”