Global reinsurance market is expected to begin softening in 2025 as the attractive returns draw more new capital into the sector, according to Beinsure Media research about Global reinsurance groups. The underwriting margins for reinsurers are anticipated to reach their peak in 2024, driven by significant price increases and stricter terms and conditions established in 2023 and during the renewals in 2024.
January 2024 renewals reflected price adjustments due to claims inflation, estimated between 5%-10% across most business lines. Geopolitical tensions, such as those in Russia/Ukraine and Gaza, affected areas like war on land, political violence, and terrorism. Global reinsurance groups are reducing coverage against medium-sized natural catastrophe risks due to investor pressure following years of large catastrophe losses and improved profitability elsewhere in the market.
Underwriting results at global reinsurance companies should remain favorable in 2023 and 2024 as rate increases stay ahead of loss cost trends. Reinsurers’ underwriting profits, derived from premiums collected minus claims paid and investment income, reflect their financial health and risk management efficacy. A decline in underwriting profits was primarily due to unrealized investment losses on fixed-income holdings, which make up over 60% of the average investment portfolio.
Survey findings show expected price hikes are mainly driven by ongoing claims inflation, particularly in property-related sectors where reinsurance capacity is constrained. Despite rising reinsurance costs, most buyers do not plan to increase their reinsurance purchases in 2024, indicating primary insurers will bear a larger portion of future losses, according to Beinsure Media.
Reinsurance rate increases for property catastrophe business are expected to slow to below 10% on average in January 2024 renewals. Consequently, underwriting margin improvements will be less significant than in 2023. Typically, two-thirds of non-facultative reinsurance business renews in January, mostly in Europe. In 2023, available capital from traditional reinsurers and alternative capital providers grew double digits, bolstered by strong earnings, market stabilization, and the transition to the IFRS17 accounting standard for some.
Top global reinsurance groups saw a nearly 17% reduction in shareholders’ equity due to rising interest rates, reducing their available capital from $475 bn to $411 bn. The increase follows a challenging insurance renewal in January 2023, during which reinsurers offered less capacity for working layers and aggregate covers, amid fundamental shifts in pricing and attachment levels.
Price increases, better terms and conditions in 2023, and to a lesser extent in 2024, will continue to support underwriting margins. Normalized for major losses, margins are expected to peak in 2024. Some reinsurance companies have already retreated from the property-casualty insurance market, and even the strongest reinsurers are now tightening terms and conditions to limit their aggregate covers and low layers of natural catastrophe protection.
Reinsurers have raised rates in recent years due to the COVID-19 pandemic, war, inflation, and climate change-driven natural catastrophes, boosting profitability. According to Fitch Ratings, reinsurance rate increases for property catastrophe business are likely to slow to below 10% on average in January 2024 renewals, though underlying profitability for the sector should improve throughout the year. Fitch forecasts the sector’s combined ratio to be 94% for 2024 and expects near-term return on capital to exceed its 8%-10% cost of capital.
Property catastrophe reinsurance rates are likely to rise in the low double-digit percentage range next year, while casualty (liability) reinsurance is expected to remain flat due to increased market competition, according to Beinsure Media. Moody’s indicates that reinsurance prices will continue to rise across all sectors in 2024, continuing the recent trend. Increased risk appetite and strong financial returns are drawing more capital from traditional reinsurers and institutional investors.
