Security Is Not a Commodity: Counterparty Quality in a Buyer’s Market

Moody’s finds most cedents expect property reinsurance prices to fall again in 2027, while AM Best warns that unrated and unauthorised reinsurers are adding credit risk to the US fronting segment. In Latin America, where commercial rates fell 9 percent in the second quarter, the quality of the paper behind each placement matters more as price matters less.

In a soft market the obvious question at renewal is price. The more important one is who stands behind the promise to pay. Three reports published in the past fortnight point in the same direction: capacity is abundant, pricing is falling, and part of that capacity is arriving with weaker security than buyers have been used to.

Cheaper protection, again

Moody’s latest reinsurance buyers survey shows 86 percent of cedents expect property reinsurance prices to fall in the year ahead, up from 74 percent a year earlier. Around 38 percent anticipate portfolio-wide declines of 7.5 to 15 percent in 2027, and almost a fifth expect more than 15 percent, after a 2026 in which most buyers correctly predicted falls but underestimated their depth. For the first time in several years, more cedents expect casualty prices to fall (43 percent) than to rise (37 percent), with non-US buyers expecting surplus property capacity to spill into casualty. Moody’s cautions that a major catastrophe before 1 January could reverse sentiment quickly.

Latin America is already ahead of that curve. Marsh’s Global Insurance Market Index shows commercial rates in Latin America and the Caribbean down 9 percent in the second quarter of 2026, against 6 percent globally, the eighth consecutive quarter of declines. Property fell 14 percent, led by Brazil and Chile, and cyber fell 10 percent as regional facultative and London markets deployed more capacity.

Where the credit risk is going

AM Best’s new report on US fronting is a useful warning for every market, not only the American one. Upwards of USD 30 billion of US P&C premium is now fronted. In the early phase of the fronting boom most of it was ceded to authorised or rated reinsurers; over time it has migrated toward unauthorised, lower-rated, unrated and collateralised capacity, driven by competition, price and the retreat of large balance sheets from MGA business. The counter-trend is telling: reinsurers are demanding that fronting carriers retain more risk so that underwriting and claims decisions are made with the bottom line in mind.

At the other end of the spectrum, established balance sheets are signalling strength. Fitch reports a record average return on equity of 21.5 percent for Munich Re, Swiss Re, Hannover Re and SCOR in the first half of 2026. Regionally, Reaseguradora Patria, rated A by AM Best, expects close to USD 1.2 billion of premium for 2026 with equity above USD 820 million, and has set a 2030 target of USD 2 billion through growth of more than 22 percent a year. Ambitions of that scale will be tested by the same softening cycle every reinsurer now faces.

What this means for Power Re

For a specialist in Group Life and Personal Accident in Latin America, two disciplines follow. On the assumed side, Power Re prices to technical adequacy, not to the market floor: when property and casualty capacity spills into adjacent lines, the temptation is to follow rates down in personal lines too, and we will not. On the ceded side, the retrocession panel is judged first on security, diversification by counterparty and collateral where justified, and only then on cost. A cheaper programme placed with weaker paper simply converts underwriting risk into credit risk, and AM Best measures both.

Sources: Moody’s Ratings reinsurance buyers survey via Reinsurance News (30 September 2026); AM Best report on the US P&C fronting segment via Reinsurance News (30 September 2026); Marsh Global Insurance Market Index Q2 2026 via Noticias y Respuestas (9 September 2026); Fitch Ratings on European reinsurers’ H1 2026 results; Reaseguradora Patria via NotiMx (12 September 2026).