Strong Technical Profits & Strategic Adjustments Propel Global Reinsurance

LONDON, UK – August 2024 – The global reinsurance sector has demonstrated remarkable resilience and strategic acumen in the face of evolving challenges. A recent report by AM Best, titled “Strong Technical Profits Bolster Momentum for Global Reinsurers,” highlights the positive trajectory of the sector, driven by robust technical profits and a series of strategic measures designed to strengthen underwriting performance.

Key Insights on the Reinsurance Sector

1. Sustained Underwriting Margins: AM Best has revised its outlook for the global reinsurance segment from stable to positive, citing sustained improvements in underwriting margins as a key driver. The report suggests that these margins are expected to remain robust over the next few years, signalling a period of sustained profitability for the industry.
2. Strategic Focus on Capital Protection: Reinsurers are increasingly prioritising capital protection over earnings stabilisation. This shift marks a significant departure from previous strategies and reflects the industry’s commitment to long-term sustainability. The emphasis on de-risking and realigning relationships with primary carriers has resulted in stronger technical profits.
3. Resilience Amid Elevated Claims Activity: The report underscores the resilience of the reinsurance sector despite ongoing claims activity. Interestingly, current claims are driven more by a series of medium-sized events and secondary perils rather than isolated large-scale catastrophes.
4. Prolonged Hard Pricing Conditions: AM Best notes that the current hard pricing cycle is expected to last longer than previous cycles. The combination of elevated claims activity and strategic de-risking has created a market environment where reinsurers can maintain disciplined pricing strategies, further bolstering their financial performance.
5. No New Entrants Despite Attractive Pricing: Despite the favourable pricing environment, the report indicates a lack of new company formations within the property catastrophe space. This trend is attributed to the cautious stance of potential investors, who remain wary after the disappointing results of the previous soft market. The focus has shifted to established players with strong balance sheets and proven track records.

JPIC Commentary

AM Best’s positive outlook for the global reinsurance sector, which is enjoying a period of  stability and growth, suggests:

• Current insurance market conditions will continue for the foreseeable future, with reinsurer appetite influenced more by individual risk profiles than wider market conditions.
• De-risking by reinsurers can lead to increased costs for insurers for policies that are regarded as high risk; costs that are likely to be passed on to the end customer.
• Any potential softening of the mainstream insurance market will need to come from insurers in the first instance rather than from the more traditional route of savings being driven by reinsurers.

It is important that companies considering longer term agreements with insurers are aware of current conditions and weigh up the risks of commitment to an insurer relationship without an appropriate break clause, in the event that the price ceases to be competitive once the market begins to soften.

This is especially relevant to our Real Estate clients who must be wary of committing to long term agreements for residential tenants as such agreements could be in breach of the Landlord & Tenant Act and may be open to challenge should the market become more competitive.

To discuss this further, get in touch with our team of consultants.