Global reinsurance market set for robust profit margins

AM Best expects reinsurers to maintain underwriting discipline in the near term.

The world’s reinsurance market will see brighter prospects thanks to robust profit margins, after a long period of repricing, higher attachment points, and stricter regulations.

Despite a slowdown in reinsurance rate increases, underwriting discipline remains strong, and profit margins are sufficient to handle higher loss activity than recently experienced, as per AM Best’s Market Segment Outlook.

“Demand for coverage remains strong due to heightened natural catastrophe loss activity and general economic uncertainty,” Carlos Wong-Fupuy, senior director, AM Best, said in a media release. 

“We also considered the expectations of a slower reduction in interest rates than originally anticipated, which are likely to support strong returns in the short term.”  Wong-Fupuy added.

The report notes that improved and stabilised underwriting margins come after a series of disappointing results following severe weather-related losses in 2017, including Hurricanes Harvey, Irma, and Maria. 

The repricing efforts were bolstered by actions to tighten terms and conditions, reduce aggregate protection, focus on named perils, shift from proportional to excess loss covers, and significantly increase attachment points.

Reinsurance portfolios for major players continue to grow due to higher reinsurance rates, a flight to quality, and increased demand. 

Although the first quarter of 2024 saw significant losses, including the collapse of the Francis Scott Key Bridge in Baltimore, underwriting margins and annualised return on equity (ROE) remain strong.

AM Best expects reinsurers to maintain underwriting discipline in the near term, even though the exceptional ROE seen in 2023 is unlikely to be repeated at such high levels.