Global share prices for listed reinsurance companies in the third quarter of last year point to more challenging times ahead, according to AM Best.

On a year-to-date basis, reinsurance companies’ valuations remained “well above” the overall market. The ratings agency attributes this to the “continued relatively benign loss environment”.

But during the third quarter the average share price increase of 7.3% was down from 8.1% at the end of the second quarter.

AM Best’s report – called Myriad Challenges Continue to Test Reinsurers – is based on a study of 18 publicly traded global reinsurers.

It predicts reinsurance market challenges will result in returns continuing to show “signs of stress”.

“Although the persisting challenges the reinsurance industry faces remain formidable, those reinsurers that are truly global and benefit from diversification across geographic, product and distribution capabilities and remain steadfast in adhering to proven underwriting may be able to successfully navigate existing and oncoming headwinds,” AM Best says.

In the fourth quarter of last year “the stock market rebounded, and although volatility remains a major concern, returns for some companies that were negative through mid-year have shown improvement, with the possibility existing that they could still rebound sufficiently to end the year with neutral or modestly positive returns”.

With low investment yields and weakening demand for reinsurance from primary insurers seeking to utilise their own excess capacity, the challenge to improve or even maintain recent earnings is “daunting”.

“The stellar performers will most likely be the companies that prove adept at leveraging strengths and expanding capabilities to meet the changing dynamics of the marketplace,” AM Best says.