A new special report from A.M. Best found some “hopeful signs” emerging for the global reinsurance industry. “After years of a soft market, weak investment returns, lukewarm investor interest and sluggish consolidation activity, the bottom line has been squeezed, and capacity has been dampened,” Best explained.
The rating agency also indicated that “favorable loss-reserve development that bolstered 2010 underwriting performance is unlikely to be duplicated in 2011. Catastrophe losses – estimated as high as $60 billion for the first half of 2011 – have diminished last January’s robust capital position. Companies are hoping for, but not betting on, a more dramatic improvement in property cat pricing at the January 2012 renewal.”
Best highlighted the following conditions as having the most significant impact on the reinsurance market:
— The effects of natural disasters worldwide are casting a shadow on reinsurers’ balance sheets, and this has started to move pricing on property catastrophe risks, with some in the industry hoping for spillover effects into other lines – perhaps even casualty.
— An active hurricane season is forecasted for the Atlantic basin, with a heightened risk of landfall for the U.S. East Coast that would add to the tornado losses already incurred during the spring.
— The advent of the European Union’s Solvency II regime promises worldwide impacts on reinsurers, although talk of a delay points to mixed consequences for global companies and their regulators.
— Amid some skepticism over the strength of Jan. 1 renewals, companies are managing capital to prepare for a potential hard market, but stopping short of committing to capital-raising initiatives.
— The stubbornly soft market and depressed valuations have chilled mergers, acquisitions and start-ups in recent years, but pressure to strengthen capital could lead to a thaw in such activity.
A copy of Best’s Special Report is available to BestWeek subscribers and can be purchased by non-sunscribers on its web site.
Source: A.M. Best