AM Best: Record Reinsurance Capital Tests Underwriting Discipline 

KUALA LUMPUR, Aug 10 (Bernama) -- Global reinsurers are facing increased pressure on pricing as strong earnings since 2023 have driven capital to record levels, raising questions over whether underwriting discipline can be maintained amid growing competition, according to a new report by AM Best.

The Best’s Market Segment Report, titled “Global Reinsurance at an Inflection Point: Can Discipline Survive the Temptation of Record Capital?”, stated that the global non-life reinsurance segment continues to benefit from strong capitalisation, favourable earnings generation and supportive market conditions.

However, growing competition is putting pressure on reinsurance pricing, particularly in property lines. Unlike previous hard markets, capital has largely accumulated within existing organisations rather than through a wave of new entrants, giving reinsurers multiple opportunities to deploy capital.

According to the report, casualty reinsurance is also emerging as an important strategic concern, with some reinsurers pursuing growth opportunities supported by enhanced rates, while others remain cautious amid uncertainty surrounding social inflation, litigation funding, larger jury awards and adverse legal environments.

“Casualty exposures often develop over many years, meaning that decisions being made today may not be fully understood until well into the next decade,” said AM Best director, Dan Hofmeister in a statement.

AM Best expects the non-life reinsurance market to maintain favourable earnings profiles barring an outsized catastrophe event, but says the ability to preserve underwriting discipline and pricing integrity amid record capital will be critical to sustaining recent profitability.

The report also noted that reinsurance renewal trends intensified during the April and midyear renewals, with United States (US) property catastrophe placements, led by Florida, recording widely estimated reductions of 15 per cent to 20 per cent.

Meanwhile, US and Bermuda reinsurers have improved their combined ratios to the mid-80s to low-90s range under US generally accepted accounting principles (GAAP) from an underwriting loss position in 2020.

Artificial intelligence (AI) is also increasingly expected to become a differentiating factor for reinsurers that successfully integrate the technology, although limited and inconsistent data can constrain model effectiveness while increasing exposure to cyber and systemic risks.

-- BERNAMA