The global reinsurance market needs to fight a war on two fronts if it is to survive and prosper in the future market.

Rating firm AM Best  issued its annual reinsurance report in the run up to the annual Monte Carlo rendezvous and warned that times have changed and reinsurers need to change with them.

It praised the market  for displaying more underwriting control by holding back capacity at the midyear 2019 renewals; however, questions remain over the sustainability of this newfound discipline.

Best said that the days of large catastrophic events triggering widespread market hardening are gone, replaced by pockets of microcycles, based on geography and loss experience.

“The 2017-2018 catastrophes showed how the overall reinsurance market failed to recognise and price for the fundamental changes that had occurred operationally and structurally in Florida’s property market. The 2018 California wildfires and Typhoon Jebi in Japan also caught many underwriters and capacity providers by surprise, due to a failure to manage appropriately and adequately price for the actual underlying risk,” It added.

According to the report, however, the evolution of the market can favour reinsurers if they embrace change and innovation in their business models.

“While technology can be a key driver of change, it is not the only one. Paramount to the continued evolution in the reinsurance sector has been the sourcing of new, cheaper sources of capital on one end, and more-inventive ways to source risk on the other,” said Best.

It warned with the costly disasters of 2017 and 2018, reinsurers have entered into a period of “seismic change”.

“AM Best believes no two market cycles are ever quite the same, and so reinsurers that reposition their portfolios tactically could be better prepared for whatever challenges lie on the horizon.”

“Like the proverbial ‘generals always fight the last war,’ many reinsurers that allow past performance to shape their expectations of future performance will be the ones more likely to be caught off-guard again,” said Scott Mangan, associate director at AM Best.