AM Best has raised its global reinsurance sector outlook to positive from stable as robust profit margins follow a period of drastic repricing and changed terms and conditions. 

Reinsurance rate increases have decelerated but underwriting discipline is being maintained and profit margins remain healthy enough to absorb higher loss activity than recently experienced, the ratings agency says in a segment outlook. 

“Demand for coverage remains strong due to heightened natural catastrophe loss activity and general economic uncertainty,” AM Best senior director Carlos Wong-Fupuy said. 

“We also considered the expectations of a slower reduction in interest rates than originally anticipated, which are likely to support strong returns in the short term.” 

Reinsurers have tightened terms and conditions, reduced their appetite for aggregate protection and raised attachment points. There has also been a shift from proportional to excess of loss covers. 

AM Best says reinsurance books for the largest players continue to expand due to a combination of higher reinsurance rates, flight to quality and increased demand. 

Loss ratios during the first quarter were affected by large events, including the collapse of the Francis Scott Key Bridge in Baltimore, but underwriting margins and annualised returns on equity remain strong. 

“AM Best believes the exceptional returns on equity experienced in 2023 are unlikely to be repeated at such a high level but expects reinsurers to focus on underwriting discipline in the near term,” Mr Wong-Fupuy said.