The global reinsurance industry is entering a critical phase as record capital levels and strong earnings raise concerns over intensifying competition and renewed pressure on pricing, particularly in property reinsurance.
According to a new report by AM Best, reinsurers have generated strong earnings since 2023, enabling the sector to build significant capital reserves. The rating agency said the growing pool of capital is creating more opportunities for reinsurers to expand their businesses, but could also test the underwriting discipline that has supported the industry’s recent profitability.
The Best’s Market Segment Report, titled “Global Reinsurance at an Inflection Point: Can Discipline Survive the Temptation of Record Capital?”, forms part of AM Best’s assessment of the global reinsurance market ahead of the Rendez-Vous de Septembre in Monte Carlo.
AM Best said the global non-life reinsurance market remains supported by strong capitalisation, favourable earnings and generally positive market conditions. However, it noted that the current market differs from previous hard-market cycles because the growth in available capital has largely come from existing reinsurers rather than from a significant influx of new market participants.
The report said many reinsurers now have several avenues through which they can deploy their capital, reducing the pressure to pursue growth exclusively through traditional reinsurance underwriting.
Despite the favourable conditions, the agency warned that increased competition could gradually weaken pricing and underwriting standards if reinsurers become more aggressive in deploying their surplus capital.
Casualty reinsurance has also emerged as a major strategic consideration for the industry. While some reinsurers are pursuing growth in the casualty market, supported by improved pricing and the opportunity to increase premiums and revenue, others are taking a more cautious approach because of growing uncertainty around long-tail liabilities.
Dan Hofmeister, director at AM Best, said casualty business presents particular challenges because claims can take several years to develop.
“Casualty exposures often develop over many years, meaning that decisions being made today may not be fully understood until well into the next decade,” Hofmeister said.
He added that maintaining pricing discipline in casualty reinsurance could ultimately prove as important as sustaining discipline in the property catastrophe market.
The concerns are being driven by factors including social inflation, litigation funding, larger jury awards and increasingly challenging legal environments, all of which could raise the cost of casualty claims over time.
AM Best nevertheless expects the non-life reinsurance market to continue generating favourable earnings, provided the industry does not experience an unusually large catastrophe event.
The rating agency said the more significant issue is whether reinsurers will maintain the underwriting discipline that has helped deliver strong results in recent years as capital continues to accumulate.
Michael Lagomarsino, senior director at AM Best, said the industry’s ability to maintain pricing and underwriting discipline despite record capital levels would determine whether the market is entering a new phase of development or heading back towards the traditional soft-market cycle.
“If underwriting discipline and pricing integrity can be maintained despite record levels of capital, the industry may indeed be in the midst of a meaningful evolution of the reinsurance market,” Lagomarsino said.
He, however, cautioned that if discipline weakens, the industry’s experience could once again demonstrate the enduring influence of supply, demand and competition on reinsurance pricing and market cycles.
