A.M. Best revises reinsurance outlook to negative, citing ongoing market challenges

Rating agency A.M. Best Co. has revised its outlook for the reinsurance sector to negative, the firm said in a briefing issued Tuesday.

 Ongoing market challenges in the sector are resulting in potential negative rating pressure, although the firm isn’t expecting a significant number of negative outlooks or downgrades over the very short term, A.M. Best said.

“It has become even more apparent that as compression continues bearing down on investment yields and underwriting margins, this strain on profitability will ultimately place a drag on financial strength,” the briefing says, noting that its view in this case is longer than its typical 12 to 18 month outlook.

“Broadly speaking, rated balance sheets are currently well capitalized and capable of withstanding various stress scenarios,” the briefing also notes.

“However, over time this strength may erode as earnings come under increased pressure and grow more volatile, favorable reserve development wanes and the ability to earn back losses following events is prolonged by the instantaneous inflow of alternative capacity.”

The full briefing is available on A.M. Best’s website.