Speaking from Monte Carlo at the Rendez-vous de Septembre meetings, AM Best senior director of global reinsurance, Carlos Wong-Fupuy says the global reinsurance sector remains well capitalized, but poor performance has forced companies to de-risk their portfolios.

“We need to make a distinction between available capacity and deployed capacity. We don’t think there is a shortage of available capacity in the market but given the bad performance we have seen from the global reinsurance sector in the past few years, the way that capacity is being deployed is actually very restricted. It’s very cautious,” he says. “The segment remains very well-capitalized but companies are being very careful about how they deploy their capacity.” 

Unlike previous hard cycles where new entrants joined the space, he adds that volatility and bad performance have kept these players away. He adds that the past six years of performance have not met expectations.

Consequently, companies are de-risking their reinsurance portfolios, he explains, saying they are “trying to move upwards in the protection layers, trying to stabilize their results. We have seen those underwriting results improving significantly since 2021, 2022, but the investment markets actually offset that effect.” 

He concludes saying in previous cycles significant events would deplete capital, after which the industry would sharply increase rates. New capital would also enter into the space in the form of highly specialized companies – a phenomenon which hasn’t occurred this time around.

“What we see at the moment is actually a number of large players which have a very diversified portfolio. The best-performing companies in the market have been moving away from pure reinsurance and catastrophe risk.”