The first time AM Best has ever been positive on the reinsurance sector

Just over a fortnight ago, we saw another strong signal of the profit potential of the global reinsurance marketplace, as rating agency AM Best shifted its outlook on the sector to positive for what we now know to be the first time ever.

It’s a fact that has gone relatively unnoticed and at the time of the original announcement we struggled to find out when AM Best last gave the reinsurance sector such a glowing review.

As we reported, we knew that AM Best had turned its outlook to negative for the global reinsurance market back in August 2014, after which it improved its outlook to stable in December 2018.

But we could not find any reference to a positive outlook having been in place prior to those moves, with reinsurance seen as only stable even prior to the softening of the market in the 2010’s, it seemed.

In the end we had to reach out to AM Best to enquire directly, as to when the rating agency last had a positive outlook on the sector.

Our question even caused AM Best to dig through its own archives to find the answer and a spokesperson let us know that 2024 is actually the first time AM Best has ever had a positive outlook on the global reinsurance segment, which is a particularly notable fact we feel.

Now, 2024 is notable for AM Best for another reason, as this year marks its 125th anniversary.

The rating agency has not been providing outlooks on the reinsurance sector for quite that long, of course. But it is notable that this year is the first time it has seen reinsurance market conditions as good enough to warrant a positive outlook on the sector.

AM Best first gave an outlook on the reinsurance sector back in 2006, just prior to the Monte Carlo Rendez-vous event that year.

Back then, the outlooks were more ratings focused, as in an reflecting an indication of where reinsurer ratings may have been heading at the time.

It was not until 2018 that AM Best broadened the view of its outlooks to be less rating-specific and established its market segment outlooks, for reinsurance and a range of other insurance segments.

So, 2024 is the first time AM Best has ever had a positive outlook for the reinsurance segment, but this is really only directly comparable with its views published since 2018.

Still, it is notable nonetheless and a reflection of the greatly improved reinsurance market conditions and likewise the return-potential of reinsurance underwriting, as so much of the recent improvement in the outlook is driven by the hard market’s higher pricing and the much tighter terms and conditions being offered on coverage.

All of which reads-across positively for the insurance-linked securities (ILS) market, as it reflects the improvements to the terms of contracts that ILS funds invest in as well and suggests a continuation of the higher return-potential seen in the portfolios of ILS funds and direct ILS investors.