A.M. Best Briefing: Pace of Convergence Capital Entering Global Reinsurance Market Appears to Be Slowing

OLDWICK, N.J.--(BUSINESS WIRE)-- The speed of convergence capital entering the market seems to have slowed, with USD 75 billion estimated for 2016 , up 10% from the USD 68 billion recorded in 2015, according to a new A.M. Best briefing. Overall dedicated reinsurance capacity also will likely see a slight increase, to USD 420 billion from USD 400 billion in 2014 and 2015.

The Best’s Briefing, titled, “Restraint in a Challenging Market Environment,” states that conditions in the global reinsurance market remain competitive, even as cession rates have begun to tick up, driven by the relatively stable terms and conditions available in the market. Aided by the lack of large U.S. catastrophe losses, ongoing capital management strategies and continued overall favorable reserve releases, A.M. Best sees the global reinsurance composite as having reasonable results for 2016.

According to the briefing, some observers believe that the industry may be nearing the bottom of the soft market as brokers are experiencing greater difficulty filling out underpriced programs and demands for further concessions in terms diminish. Nonetheless, current accident-year underwriting margins will remain pressured for the near term, as rates remain at historical lows.

The global reinsurance sector remains by all accounts overcapitalized, according to A.M. Best and Guy Carpenter’s estimate, despite the slower influx of capacity. Catastrophe bond issuances also tapered off in 2015 and 2016 after strong growth through 2014. The marginal growth trend for rated balance sheet capacity is expected to continue for 2017.

While current market conditions appear to be stabilizing, competition remains intense and quality of earnings under pressure. This is sustaining the need for further merger and acquisition activity, and A.M. Best believes that consolidation will continue, particularly among smaller players in the market as acceptable returns become increasingly harder to achieve. Going forward, underwriting will have to become a larger contributor to profits and returns, leading to a more cautious risk selection, more diversification of product offerings, a wider geographic reach and conservative loss picks. The solid players will be those that have been conservative in underwriting and reserving, have developed a book of business that will remain relevant for today’s market and allows for quick shifts in and out of lines of business depending on market conditions.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=257465.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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Source: A.M. Best