Insurance
Home›Insurance›Reinsurance›AM Best warns reinsurance pricing discipline could ero…
AM Best warns reinsurance pricing discipline could erode amid record capital
The rating agency said the next 12 months could determine whether underwriting discipline persists or another traditional soft market cycle returns.
AM Best says the global reinsurance market is at an inflection point after consecutive strong underwriting years boosted capital generation and supported favourable earnings for reinsurers. The rating agency also pointed to continuing growth in insurance-linked securities and other alternative capacity, which has lifted reinsurance capital across the market to record levels.
In a new report, AM Best framed the key issue as whether reinsurers can maintain underwriting discipline, or whether irrational competition emerges that could restart the pattern associated with a soft market cycle. Unlike earlier hard market cycles, the agency said capital has largely accumulated with existing incumbents rather than coming from a wave of new start-ups.
AM Best said routes to market have expanded for major reinsurance groups, giving them multiple opportunities to deploy capital and reducing reliance on a single underwriting channel. It also extended its concerns beyond property catastrophe reinsurance, noting some players are growing in casualty while others remain cautious due to uncertainty around social inflation, litigation funding, the size of jury awards, and a worsening adverse legal environment.
The agency added that casualty exposures can take years to fully show the impact of decisions made today, potentially extending into the next decade. AM Best said the next 12 months may ultimately determine whether the market enters a new era of sustained underwriting discipline or continues toward another traditional soft market cycle, warning that the fundamental supply-demand and competition dynamics can be persistent.