Reinsurers are unlikely to loosen their terms and conditions or lower attachment points “any time soon”, AM Best Senior Director Carlos Wong-Fupuy says in an outlook for the sector. 

Mr Wong-Fupuy says a rebalancing, which has seen primary insurers absorbing more catastrophe losses after having to increase retention levels, remains a driver that’s “here to stay” in the near-to-medium term, even with increasing demand from cedents for cover. 

“Some companies may be able to provide increased capacity in terms of quota share treaties, but that is going to be on a very selective basis and what we are seeing is reinsurers putting significant pressure on primary companies actually to increase the rates first and improve the quality of their portfolios,” he says. 

AM Best has maintained a stable outlook for the global reinsurance segment, with substantial rate improvement, mainly in property lines, and higher average attachment points expected to result in widening profit margins. 

“We don’t see any time soon reinsurers actually lowering attachment points or loosening terms and conditions,” Mr Wong-Fupuy says. 

Reinsurers are also benefitting from higher interest rates, and an improved return on equity picture, but Mr Wong-Fupuy says the sector is still catching up after several years of technical and operating losses. 

Risks from elevated weather-related losses, including secondary perils, also remain an issue, while new capital is still cautious despite improved market conditions. 

Geopolitical uncertainties and concerns about economic and social inflation are contributing to the overall stable outlook, according to AM Best’s report. 

The report also addresses the impact of rising interest rates on unrealised investment losses. 

“The mark-to-market losses many insurers experienced was not substantial enough to result in a strategic shift in business to reduce capital burdens,” AM Best Senior Financial Analyst Dan Hofmeister said. 

“Property/casualty reinsurers retained adequate liquidity and were able to recoup much of their losses as their fixed-income investments matured.”