A recent market analysis by A.M. Best shows there is increasing pressure in the property and casualty insurance and reinsurance sector to support rate increases. Collective insured losses from disasters in Japan, New Zealand, Australia and other events have pushed companies to safeguard their capital and push for rate increases.
According to Best, some reinsurers may not see profits from underwriting for the better part of a year; caused by significant increases in first quarter combined ratios compared to December last year. Consequently, Best maintained a “stable” rating for the non-life, global reinsurance industry.
Because most companies have factored probable (maximum) losses (PMLs) into their capital resources, and so far, no single loss has exceeded any companies stated risk; A.M. Best maintained (most) its current ratings. Best also noted; the past disasters and the most recent weather occurrences have pushed companies underwriting losses very close to their bottom line, single event PMLs.
The economic conditions are also a factor for the insurance and reinsurance business. Investment conditions aren’t good; causing low investment earnings. The latest depreciation of the U.S. dollar and a sudden rise in interest rates could also play a part in producing a loss in investments.
With most companies not having near the capital resources they had at the end of last year; reinsurers should be focusing on increasing underwriting profits. Other non-catastrophe exposed companies could lose additional capital due to a steady decline of reserve development, pushing underwriting losses.
A.M. Best noted that they don’t see an influx of new companies forming; however, there is still an interest in cat bonds, as well as a few other minor things bringing in new capital.