AM Best’s reinsurance market briefing often sets the tone for debate at the annual September Monte Carlo Rendezvous and it was no different this year.
In their February report AM Best’s analysts described the market as being at an inflection point. The rating agency outlook is stable. Strong operating results continue, with prudent capital managed plans generally being the rule.
Elevated interest rates are enhancing investment income and earnings.
Dedicated reinsurance capital is projected to grow by 6%; there is now more of a focus on the top line rather than the bottom line for reinsurers.
There is accelerated softening in property reinsurance. Social inflation is driving reserve and pricing concerns in casualty. Elevated frequency and severity of weather-related events is a growing risk.
Geopolitical and macroeconomic uncertainty is being caused by inflation, policy shifts, and market volatility.
In this environment, disciplined execution in a softening market is critical. There are robust operating results – returns are still exceeding the cost of capital.
The last three years have been very good for the reinsurance sector, return on equity has been around 15% for several years, it was 4.5% in 2021 so the recent past has been a good news story.
All segments are performing well, and revenues generally are recording record profits with sub 90% combined ratios and that trend is continuing this year. The Lloyd’s of London’s new syndicate pipeline is very good with plenty of news about diversification.
US property lines are improving – primary markets have recorded 88% combined ratios for residential property and 79.6% for commercial lines, however, US casualty lines remain a concern.
Dedicated reinsurance capital is at record highs, with traditional capital $575 billion, and ILS market capacity was at $123 billion in 2025.
The AM Best panellists at the briefing explained that the key global risks facing the sector, which affect credit quality, are as follows:
Geopolitical uncertainty – when Donald Trump was elected two years ago, we expected volatility but the market is well equipped to deal with that. For example, marine insurance continues to be available despite higher prices
Macroeconomic uncertainty – inflation: previously, deflationary pressures were not good for reinsurers, but higher interest rates are good for the industry, AI could be productive and act as a deflationary force
Climate risk – not much to say here but the Europe wide summer heatwave says it all, according to our panel
Broker facilities – on the positive side, broker facilities give underwriters access to great volumes of capacity, but reduced underwriting control, aggregation risks, regulator scrutiny so AM Best see it as a net credit negative
AI – there is a lot of investment and chat about creating operational efficiencies but we are not yet seeing underwriting benefits
Emerging liability – big focus on AI and algorithmic liability, losses arising from autonomous systems e.g. drones, self-driving vehicles. Cyber risk is evolving so fast that it is a permanently emerging liability
Concerns over private credit have not gone away, but it is more of a problem for the primary market, it is not a systemic issue for reinsurers, said the panel.
Chris Don, Head of Communications at Russell said: “The reinsurance sector has experienced several years of high profits, benefiting from low combined ratios and a generally disciplined approach to underwriting. Can it continue? That is the question that reinsurers are asking at this year’s conference, and there is no reason it can’t, however, there are major headwinds that are causing concern.
Geopolitical volatility is probably the number one concern and that in turn is closely correlated with macroeconomic uncertainty. There is no perfect system or template for mitigating such risks, but reinsurers are investing in better data analytics to help them understand the outcomes of shocks to global trade. Specialty intelligence is much in demand, as is the requirement for talented human intelligence that goes with that. Those are just some of the themes that have stood out so far at this year’s conference, as well as the perennial debate about the value (or not) of AI and cyber risk. Many underwriters have concluded that exposures are increasingly dynamic in nature and evolving at a faster rate than ever, so are turning to specialty risk management to help deal with this.”
