Changes in terms ‘as or more important’ than pricing – AM Best

AM Best’s recent decision to update its outlook for the reinsurance sector from stable to positive for the first time ever back in June this year was based not just on pricing, but also “mainly about de-risking”, the rating agency reported at its press conference at the RendezVous-de-Septembre (RVS 2024) in Monte Carlo.

That was according to the rating agency’s senior director for global reinsurance Carlos Wong-Fupuy, who told RVS 2024 that “changes in terms and conditions, the increase in attachment points and the tightening of wordings is as, if not more important than pricing”.

Wong-Fupuy added that he believed the role of reinsurance had reverted to its historical position as a protector of capital because of the particular economic factors that were driving the latest economic cycle.

He explained: “The main way to characterise previous cycles is a significant large event that would erode capital and put pressure on the solvency of a number of companies that would trigger a sharp increase in rates within a relatively short period of time.

“But something that has changed that dynamic in the last few years has been interest rates. At the moment what we see is that, after the excellent results that we saw last years, is that process has created conditions where the situation is more likely stabilise at a higher point.”

Financial results

Wong-Fupuy added that, post-2017, reinsurer’s underwriting results turned from losses into profits and that that trend has generally continued.

He added: “All the indicators are moving in the right direction and are showing the positive position the sector is in.”

For example, reinsurer’s combined operating ratios improved generally across the last year, with the market also seeing impressive levels of return on equity on average.

Mahesh Mistry, senior director and head of analytics at AM Best, added: “We’ve seen a significant step change in 2023, both on the underwriting side not just to rate but to terms and conditions, and then reinvestment rates improving as well.

“Now it’s a question of how long is this going to last going forward?”