OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. is maintaining its stable rating outlook for the global non-life reinsurance industry as companies see growing pressure in the market to support increased rates. This reflects that companies generally have factored probable maximum losses (PML) into their capital resources and that no single loss thus far has exceeded a company’s stated risk appetite.
Further analysis of the sector following the Tohoku, Japan earthquake and tsunami in March shows that reinsurers have already begun to increase rates and are hopeful for a firmer market. Domestic insurers in Japan appear to be well positioned to absorb net losses from the 9.0 magnitude earthquake and subsequent tsunami. Cumulative insured losses from other recent catastrophes, including the Christchurch earthquakes in New Zealand and flooding in Australia, have prompted companies to adopt strategies to conserve capital and press for higher rates.
Companies are preserving capital in anticipation of rate increases. While they are continuing to pay shareholder dividends, extraordinary dividends and share buybacks appear to have halted.
Reported combined ratios for the first quarter have increased significantly from those reported on December 31, 2010, and some reinsurers may find it difficult to produce an underwriting profit for the full year based on losses incurred to date. The industry faces further challenges in achieving profitability as the hurricane season approaches and investment yields remain low.
The accumulation of first-quarter events, which potentially will produce industry losses of USD 50 billion, is causing underwriting losses to approach companies’ single-event PMLs, which are considered in A.M. Best’s view of capitalization as defined by Best’s Capital Adequacy Ratio.
Another major catastrophe may result in further erosion of reinsurers’ capital and a subsequent review of A.M. Best’s stable outlook.
To access a copy of this briefing at no charge, please visit www.ambest.com/press/051604japanbriefing2.pdf.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2011 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.