Global reinsurers must have a watchful eye: AM Best

Reinsurers must navigate a high inflationary environment.

Substantial rate improvements, particularly in property lines, are anticipated to widen profit margins with higher average attachment points for the global reinsurance industry, AM Best forecasted. 

Increased demand for coverage, heightened catastrophic loss activity, and economic uncertainty contribute to the positive outlook. 

Rising investment income, strong demand for life and annuity reinsurance, and continued capital flow support the industry.

However, challenges persist. Growing uncertainty surrounds underlying risks, including weather-related activities and evolving risk profiles. 

Cautious new capital, concerns about economic and social inflation, and higher post-COVID-19 mortality in certain markets counterbalance the positive trends.

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The insurance market in 2023 has seen a rapid increase in catastrophic loss activity, mainly due to weather-related losses. Reinsurers are benefitting from a hardening market, with reduced capacity leading to higher attachment points and risk-adjusted rates. 

Whilst some disparity exists between primary insurers and reinsurers, AM Best expects reinsurers to maintain their cautious stance.

Casualty reinsurers report adverse reserve development, driven by social inflation in the US. 

Prudent loss reserving methodologies are essential to account for the impact of social inflation and general inflation in the future. 

Global life reinsurers report improved mortality since the pandemic's peak, but non-COVID mortality remains higher than expected, with uncertainties about its reversion to pre-COVID levels.

The current global reinsurance market presents a "generational" opportunity with all-time high pricing trends and restrictions in terms and conditions. 

However, challenges, including uncertainty about adapting to new market dynamics, addressing social inflation, climate change, and insurability concerns, loom large. 

Reinsurers must navigate a high inflationary environment, presenting an unprecedented challenge for many actuaries and underwriters.