Reinsurance market needs $100b loss to tighten

AM Best said a major unexpected event would be needed to materially hit sector funds.

AM Best has revised its outlook for the global non-life reinsurance sector to stable from positive, citing falling property reinsurance rates and a broader return to normal market conditions.

Speaking at the RIMS RISKWORLD in Philadelphia, AM Best associate director Dan Hofmeister said pricing in the property segment has dropped significantly and is nearing pre-2023 levels. 

Despite this, reinsurers have largely maintained tighter terms and higher attachment points.

He said the rate reductions reflect improved underwriting by primary insurers, which has strengthened underlying portfolios and reduced pressure on reinsurers.

Higher deductibles and reduced exposures have also shifted more risk back to primary insurers, particularly for smaller catastrophe events. 

As a result, reinsurers are taking on fewer losses and focusing more on capital protection. Industry estimates show catastrophe losses borne by reinsurers have fallen by nearly half in recent years.

In casualty reinsurance, Hofmeister said social inflation and rising litigation costs continue to affect results, with some reinsurers reporting adverse reserve developments. 

He added that views differ across the market on whether pricing is keeping pace with claims costs.

Alternative capital remains a key factor, particularly in property reinsurance, where it is increasingly deployed alongside traditional capacity. 

Whilst this has added competition and put pressure on pricing, Hofmeister said the relationship is largely complementary.

Looking ahead, he said the market is unlikely to tighten without a major or unexpected event, noting that insured losses would need to exceed $100b, or more, to significantly affect capital levels.