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AM Best warns reinsurance competition could erode underwriting discipline
AM Best said the next 12 months will help determine whether capital-rich conditions produce sustained pricing discipline or a return to a soft market cycle.
Reinsurance markets have softened as robust earnings and abundant capital have intensified competition, raising a key question for insurers and reinsurers about whether underwriting discipline can be maintained, according to AM Best, cited by Insurance Journal.
In a report published Aug. 10 titled “Global Reinsurance at an Inflection Point: Can Discipline Survive the Temptation of Record Capital?,” AM Best said the coming 12 months may be decisive in determining whether the industry is entering a new era of sustained underwriting discipline or continuing down the path of another traditional soft market cycle.
The ratings agency said there are signs of a possible change in paradigm if reinsurers can preserve pricing integrity despite record levels of capital, but it cautioned that history shows supply, demand, and competition dynamics can remain persistent even when market structures evolve.
AM Best referenced prior reinsurance cycle debates, including the 2005 “Bermuda class” after hurricanes Katrina, Rita, and Wilma, and later discussions during the growth of insurance-linked securities and third-party capital after the global financial crisis, noting that underwriting cycles have tended to return in evolving forms.