The global reinsurance sector returned an underwriting profit last year, but caution around property casualty risks has continued, AM Best says. 

The company’s global reinsurance composite posted a combined operating ratio of 95.6%, a 0.8-percentage-point improvement over the previous year. 

Results have improved in recent years as key players have shifted from lower and medium layers of property catastrophe risks, while tightening contract wording and re-deploying capital toward the casualty, specialty lines and excess and surplus primary segments. 

With much-harder market conditions since the start of this year, interest in property catastrophe risks has renewed cautiously, the report says. 

“The January 2023 renewals highlighted the mismatch between supply and demand, but it’s also important to recognize the difference between ‘available’ and ‘deployed’ capacity,” AM Best Senior Director Carlos Wong-Fupuy said. 

“Available capital is not under pressure; however, the well-established global reinsurers have become much more cautious allocating their capital, which pressures the deployment of capacity.”  

Investment results were affected severely by unrealised losses on fixed-income securities last year, with the global reinsurance segment posting a return on equity (ROE) of 0.8% following a 9.0% ROE in 2021.  

Concerns about economic and social inflation, central banks’ contractionary monetary policies, asset market volatility, and the recent underperformance of the global reinsurance segment have translated into a higher cost of capital as well, AM Best says. 

“Investors will likely demand a strong commitment to underwriting discipline, as well as flexibility to adjust to changing conditions in the business cycle,” Mr Wong-Fupuy said. “Well-established, diversified companies with a proven track record are better positioned to succeed in this effort than start-ups that are pressured to meet top-line targets.”