“Unfavorable loss cost trends and high catastrophe activity continue to dampen returns on capital, which should keep the industry focused on the need to push for more rate increases,” said Greg Dickerson, associate director
AM Best has maintained its market segment outlook for the global reinsurance segment at stable, citing in part the ongoing positive pricing momentum driven by rising loss cost inflation, enhanced market discipline including tighter terms and conditions, and a growing demand for reinsurance capacity.
A new Best’s Market Segment Report, titled, “Market Segment Outlook: Global Reinsurance,” notes that the growing demand for reinsurance is being bolstered by primary carriers looking for stable results and capital efficiency in an uncertain environment.
The report also cites some negative factors in the segment such as historically low interest rates on fixed-income investments that are in most cases below loss cost inflation, and adverse loss reserve development in casualty lines of business due to sustained social inflation.
AM Best expects reinsurance pricing to improve for most business lines at the upcoming Jan. 1, 2022 renewals and into the new year, albeit likely at a slower pace than in the past few years. The impact of losses from floods in Europe and Hurricane Ida in the United States ended re)insurers’ hopes for a relatively benign year for natural catastrophe losses in 2021.
“Unfavorable loss cost trends and high catastrophe activity continue to dampen returns on capital, which should keep the industry focused on the need to push for more rate increases,” said Greg Dickerson, associate director.
Social inflation concerns continue to prompt significant pricing increases in the casualty lines of business, and some of the same issues affecting liability coverages may be creeping into the property lines.
The report notes that this trend has been most apparent in post-catastrophe claims settlements, for which claims inflation has exceeded the usual levels expected due to surges in demand, coupled with shortages of labor and materials needed to complete repairs.