A.M. Best predicts profitable 2012 for reinsurers but industry faces “unprecedented” economic uncertainty

A.M. Best Co. released Monday a report that predicts reinsurance firms will make an “acceptable profit” in 2012, but suggested reinsurers will rely on underwriting profits due to low returns on investments.

“A.M. Best expects that even with consideration for the catastrophe loss that occurred recently in the fourth quarter, reinsurers are still well positioned to put forward an acceptable level of underwriting and overall profit for the full year,” the Oldwick, N.J. ratings firm stated in the report.

The report, titled “Global Re Outlook Remains Stable; Industry Positioned to Bear Uncertainty,” noted that the storm resulting from Hurricane Sandy “had little effect on pricing going into the January renewal,” but some regional accounts affected by the storm did “experience price increases.”

Hurricane Sandy was downgraded to post-tropical storm status when it made landfall in New Jersey Oct. 29. The following month, EQECAT Inc. forecast that insured losses would be US$10 billion to US$20 billion, with total economic damages of between US$30 billion and US$50 billion. Meanwhile, Swiss Re reported in November it estimated claims from Hurricane Sandy will be about US$900 million, net of retrocession and before tax.

In its report Monday, A.M. Best said reinsurance firms “rebounded quickly” after catastrophe losses in 2011 but that there were “unprecedented levels of uncertainty and challenges” in the global economy in 2012. Meanwhile, the report suggested reinsurance firms are facing low yields on their investments.

“The continuing low interest rate environment, however, appears, to be reinforcing a focus on underwriting discipline, which should translate into a positive for the segment.”