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A.M. Best Warns of Rough Days for Reinsurers

'Market headwinds' could mean rating reductions in the long term

A.M. Best has joined a growing chorus of voices warning that the reinsurance sector is in for some tough times.

In a briefing, the agency says that “significant market challenges… may result in negative rating pressure” in the long term.

Read: Competition Could Hurt Reinsurers’ Ratings: S&P

These challenges include “compressed investment yields [and] lower underwriting margins,” the briefing says.  These margins are beginning to diminish “as companies look to protect market share at the expense of profitability.”

This negative outlook echoes what several others have said in recent months. Most recently, Standard & Poor’s warned that increased competition and “an influx of third-party capital” could hurt reinsurers’ ability to generate strong returns.

Read: Alternative Forms of Capital Shifting P&C Reinsurance: Towers Watson

There is a way out of the woods for reinsurers, A.M. Best says, but it is a long a difficult one.

“[I]t will continue to take optimal conditions, including benign or near-benign catastrophe years, a continued flow of net favorable loss reserve development and stable financial markets, to produce even low double-digit returns.

“Such return measures would have been considered average or perhaps mediocre just a few short years ago.”

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