AM Best has maintained its negative outlook for the reinsurance sector, which continues to face a tough operating environment.

The scope for positive rating actions is remote due to uncertainties cast by Brexit and the Trump administration’s plans to reform the US tax system, the ratings agency says.

Pockets of opportunity exist in cyber insurance and mortgage reinsurance, but these come with risks and are not significant enough to lift the sector.

“Clearly, competition is tough,” AM Best says. “The market is in the later stages of a soft market. Risk-adjusted returns are strained as compression continues bearing down on underwriting margins, and investment yields offer little help.

“The market headwinds at this point present significant longer-term challenges that industry players need to work through.

“Amid the considerable uncertainty as to the timing and what exactly it will take to turn the market, the one certainty that remains is reinsurers will have to continue to evolve, learning from their mistakes and successes.”

Reinsurers with diverse business portfolios, advanced distribution capabilities and broad geographic reach are best placed to prevail.

In AM Best’s ranking of the top 50 reinsurers, Swiss Re has taken top spot from Munich Re. The pair account for more than 30% of global reinsurance gross written premium.