NU Online News Service, Jan. 9, 12:48 p.m.EST

The global reinsurance industry seems “poised for a turn,” asmultiple factors are increasing the demand for reinsurance, but theshort memory of the insurance industry could cause soft-marketpricing to return in a hurry as the sting of recent losses fades,according to A.M. Best.

In a Reinsurance market briefing, Oldwick, N.J.-based Best says,“Over the past five years, reinsurers generally experienceddeclining demand for reinsurance capacity primary companiesincreased retentions across the board.” Recent global catastrophes,volatility of assets, and catastrophe-model changes, though, haveconspired to change primary companies' perception of risk, whichhas increased demand for reinsurance, Best adds.

“This increasing demand for reinsurance cover has helped tobolster current pricing for property catastrophe-related business,”says Best, noting that it expects improved pricing, terms andconditions that will support low double-digit returns on equity forreinsurers in 2012.

But the rating agency cautions that the pricing increases may beshort lived. “History has proven that the market has a shortmemory, and if the sting of recent loss events quickly fades, thesoft market may return,” Best says.

Best gives the reinsurance industry a stable outlook for now,but says if soft-market pricing does reemerge in 2012, the capitalstrength of the segment would slowly erode, and the rating agencywould “consider revising the ratings outlook to negative, aspressure on ratings would be expected to mount.”

Reinsurers still face a number of challenges, Best says,including pricing pressures, low-investment yields and a “limitedcushion of loss-reserve releases available to mask deterioratingearnings.”

But Best adds that global reinsurers are still capable ofabsorbing significant losses from a combination of events.Additionally, the sector has taken “decisive measures” to reduceits exposure to the Eurozone crisis.

Best also says, “the sector has repeatedly proven itsresilience,” absorbing numerous catastrophic events around theworld and managing them well from a capital perspective.

“The reinsurance market is at a juncture where companies seek toanticipate potential negative scenarios while positioningthemselves to seize opportunities,” Best concludes. “While adifferent set of market conditions certainly would be preferable,the reinsurance sector has been adaptable, resilient and stableduring these challenging times.”