A.M. Best is continuing its negative outlook for the U.S. property/casualty reinsurance sector in 2018, adding that the space’s financial performance continues to be “lackluster.”
“At this point, A.M. Best estimates that the combined ratio and [return on investment] for the sector will continue to demonstrate lackluster performance beyond 2017,” the ratings agency said in its latest market segment outlook.
A.M. Best’s assessment of the U.S. reinsurance sector stands in contrast with how it now views the U.S. commercial lines arena. Analysts recently boosted their outlook for commercial insurers from negative to stable for 2018, the first for commercial lines in seven years. A.M. Best said it was impressed by commercial lines insurers’ pricing, underwriting and resilience in recent years.
Why the continued negative outlook? A.M. Best blames a situation that has already lasted several years: significant pressure on U.S. P/C reinsurance rates due to the rise of alternative capital. There’s also the potential for more adverse loss reserve development, beyond losses already reported from the slew of catastrophe events – hurricanes, earthquakes and wildfires – reported in late 2017.
Alternative capital continues to draw much of A.M. Best’s attention.
“A.M. Best is concerned that the property-catastrophe pricing is somewhat at the mercy of the alternative capital market and is not as heavily influenced by the traditional reinsurance market as has historically been the case,” the ratings agency said. “Any near-term improvement in the market may be relatively short-lived given the level of excess capacity in the overall market today.”
At the same time A.M. Best said that the reinsurance picture could see some lasting improvements, assuming the global and U.S. economic climate improves. The U.S. federal tax cut passed in December could also help, A.M. Best said.
All “will provide opportunities for organic growth and improved utilization of excess capacity, which should also aid in improved risk pricing,” according to A.M. Best.
Source: A.M. Best