Reinsurers can secure premium growth while trimming top risks: AM Best

US and Bermuda reinsurers are likely to continue to enjoy premium growth on heavy demand even as the bulk of the market shies away from some of the fastest-hardening rates, analysts at  AM Best have declared.

Premiums “will further increase in 2022 as demand has proved resilient and rates in most key business lines continue to rise, although the pace is slowing,” analysts said in fresh research.

Capacity remains “ample” in most business lines, but clearly not all. And fast-rising rates in high-risk zones are no temptation to an industry bent on diversification for increased earnings stability.

“The era of catastrophe-focussed traditional reinsurers appears to be over,” analysts said of the diversification drive, with caveat for property cat solutions in ILS.

The greatest capacity constraints have surfaced in frequency layers of nat cat programmes, aggregate covers and peak catastrophe zones in the US.

Florida exposures are particularly anathema, largely on account of long-term structural issues in the tort system which “appear unlikely to be resolved in the near to medium term.”

Earnings in the US and Bermuda reinsurers could continue to be padded by favourable prior period reserve developments, analysts suggested, but with warnings on the impact from inflation.

Forward projection of recent trends on reserve developments would be nice, but “any optimism regarding reserve redundancy for recent accident years must be tempered by recognising the current spike in inflation could continue for a prolonged period,” analysts warned.

Still ahead of the Atlantic hurricane season peak and with heady price gains under their belts, reinsurers look on track to improve upon the 2021 accident year combined ratio of 101.9%, AM Best noted.

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