Global reinsurers can take more rate, but 'resilient’ 3rd party capital mutes gains: AM Best

Global reinsurers can take more rate in 2022 on the back of strong demand, historic losses and rising inflation, but with a very 'resilient' third party capital market capable of muting select gains, ratings agency  AM Best has said.

The industry can expect "modest" rate gains in 2022, AM Best now says. But the still-hardening market is neither limitless nor evenly distributed.

"Rate improvement may disappoint in certain layers of catastrophe lines, where the presence of alternative capital continues to mute pricing gains," analysts warned.

Third party capital will remain a "resilient" part of the picture, even though some investors have shown a certain "wariness" as returns have proven volatile and losses have trapped capital.

"In the absence of better investment options emerging, AM Best does not expect third-party investors to pull back broadly from the natural catastrophe reinsurance market," analysts wrote. CAT bond engagement remains "significant."

Risks, beyond the vagaries of loss rates, focus on inflation:  social inflation has been muted, but remains latent and capable of driving rate increases in casualty lines; economic claims inflation at a 40-year high is an uncertainty to be reckoned with.

Such uncertainties could unwind any hopes that reserve release, especially underutilized IBNR Covid reserves, could pad profits.

"The concerns surrounding loss cost inflation should lead the industry to take a more conservative approach to setting reserves in the near-term," analysts claimed.

Comments come as AM Best updates its full array of sector outlooks for the re/insurance industry. AM Best has reiterated its 'stable' outlook for global non-life reinsurers, citing, "robust" solvency, "ongoing positive pricing momentum," growing primary carrier demand driven by needs for earnings stability and a new "enhanced market discipline" grown out of recent years' efforts.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.