The comprehensive global reinsurance composite provided by the company reveals an encouraging combined operating ratio of 95.6%, showcasing a noteworthy improvement of 0.8 percentage points compared to the preceding year.
Recent years have witnessed a positive transformation in outcomes, largely attributed to significant players’ strategic shift away from lower and medium layers of property catastrophe risks. Concurrently, these entities have undertaken rigorous enhancements in contract language while reallocating capital towards the casualty, specialty lines, and excess and surplus primary segments.
As the current year commenced amid notably more challenging market conditions, there has been a renewed yet cautious interest in property catastrophe risks, as indicated by the report. This tempered approach reflects an industry-wide effort to maintain prudence and vigilance in the face of evolving risk landscapes.
“The January 2023 renewals highlighted the mismatch between supply and demand, but it’s also important to recognise the difference between ‘available’ and ‘deployed’ capacity,” AM Best Senior Director Carlos Wong-Fupuy explained.
He continued: “Available capital is not under pressure; however, the well-established global reinsurers have become much more cautious allocating their capital, which pressures the deployment of capacity.”
Investment performance took a considerable hit due to substantial unrealised losses on fixed-income securities in the previous year. This led to a notable decline in the global reinsurance sector’s return on equity (ROE), plummeting to 0.8% from the robust 9.0% ROE achieved in 2021.
Concerns about economic and social inflation, central banks’ contractionary monetary policies, asset market volatility, and the recent underperformance of the global reinsurance segment have translated into a higher cost of capital as well, AM Best says.
“Investors will likely demand a strong commitment to underwriting discipline, as well as flexibility to adjust to changing conditions in the business cycle,” Mr Wong-Fupuy said. “Well-established, diversified companies with a proven track record are better positioned to succeed in this effort than start-ups that are pressured to meet top-line targets.”
Source: Insurance News AU
