AM Best has revised its market segment outlook for the global reinsurance segment from stable to positive, citing robust profit margins along with higher attachment points and tighter terms and conditions that followed a period of drastic repricing.

A Best special report said despite reinsurance rate increases decelerating, underwriting discipline is being maintained and profit margins remain healthy enough to absorb higher loss activity than recently experienced.

Carlos Wong-Fupuy, senior director, AM Best, said: “Demand for coverage remains strong due to heightened natural catastrophe loss activity and general economic uncertainty.

"We also considered the expectations of a slower reduction in interest rates than originally anticipated, which are likely to support strong returns in the short term.“

The newly issued Best’s Market Segment Outlook also notes recently improved and stabilised underwriting margins followed a string of disappointing results in the years after heavy weather-related losses in 2017 (notably Hurricanes Harvey, Irma and Maria).

According to the report, repricing efforts were compounded by various actions aimed at tightening terms and conditions, with a diminished appetite for aggregate protection, focus on named perils, shift from proportional to excess of loss covers, and a sharp increase in attachment points.

Reinsurance books for the largest players continue to expand owing to a combination of higher reinsurance rates, flight to quality and increased demand.

While loss ratios during the first quarter of 2024 were impacted by large losses, including the collapse of the Francis Scott Key Bridge in Baltimore, underwriting margins and annualised ROEs remain strong.

“AM Best believes that the exceptional returns on equity experienced in 2023 are unlikely to be repeated at such a high level, but expects reinsurers to focus on underwriting discipline in the near term,” Mr Wong-Fupuy said.