Reinsurance pricing momentum is set to continue into next year as a high level of catastrophe activity and cost trends keeps the industry focussed on the need to push for more rate increases, AM Best says.

Pricing is expected to continue to improve across most business lines for reinsurers at the upcoming January renewals and into 2022, albeit at a likely slower pace than in the past few years, it says in a report that affirms a stable outlook for the sector.

Enhanced market discipline, including tighter terms and conditions, growing demand for reinsurance capacity and manageable COVID-19 pandemic related mortality experience despite negative developments this year are also supportive.

Negative factors include low interest rates on fixed income investments, adverse loss reserve development in casualty lines due to social inflation, supply chain disruptions and labour shortages and catastrophe activity including the rise of secondary perils.

“AM Best believes that reinsurance pricing must continue to harden to combat the underwriting issues arising from higher climate-related property catastrophe losses, social inflation, anaemic investment returns, and an uncertain economic outlook,” the report says.

Despite the uncertainty embedded in balance sheets, COVID-19 appears to have been an earnings, rather than a capital, event for life and non-life (re)insurers, and no significant negative rating actions have been triggered by the pandemic.

For non-life reinsurers, uncertainty about COVID-19-related claims reserves remains significant, as final settled amounts may take years to develop.

But AM Best says reserving and solvency positions are expected to remain solid, assuming no industry-wide retroactive legislation expanding liability for non-property business interruption damage, especially in the US.

Third-party capital continues to provide retrocessional opportunities to rated reinsurance balance sheets, the report says.