Stable outlook maintained for global reinsurance sector

For the second year in a row, A.M. Best Co. is maintaining a stable outlook for the global reinsurance sector.
This affirmation reflects generally strong balance sheets, continued improvements in enterprise risk management (ERM) and general earnings momentum through 2007, A.M. Best reports in a release.
Only a modest amount of anticipated rating or outlook changes is expected; the majority in 2008 will likely be affirmations with stable outlooks, the company adds.
Price deterioration, competition and increased cedant retentions are of concern in the sense that they might affect the sustainability of the sector’s long-term operating performance, A.M. Best reports.
“Although the reinsruance sector’s capital position is strong, recent history indicates the pain that soft casualty markets can inflict on required capital year after year, and how large-scale catastrophes can remove massive amounts of capital from the market in the blink of an eye” A.M. Best says.
“A.M. Best believes that 2008 will be an important year for the global reinsurance industry, as it can influence the direction of the market for years to come. A.M. Best has witnessed the reinsurance sector’s embracement of ERM practices and the subsequent improvement of data capture risk modelling and correlation analysis.
“However, it is important to note ERM enhancements have not been tested by a mega-catastrophic event, as two Category 5 hurricanes did strike landfall in 2007. But the dynamics of these storms to a great extent limited insured losses.”