“Given the sector’s abundance of capital, we expect a moderately softer and more competitive market in 2025, barring significantly above-average loss activity in 2H24. However, underlying margins are likely to remain close to their 2023-2024 peak as reinsurers maintain their underwriting discipline.”
London: Fitch Ratings has revised its global reinsurance sector outlook to ‘neutral’ from ‘improving’ as the pricing cycle has most likely passed its peak, the agency says in a new report.
Nevertheless, profitability should remain very strong by historical standards in 2025, said Fitch.
Capital buffers and reserve adequacy have strengthened, helped by record profits in 2023 and 1H24, and reinsurers are well positioned for a decline in prices even as claims costs continue to rise and catastrophe losses become more significant due to climate change.
“Given the sector’s abundance of capital, we expect a moderately softer and more competitive market in 2025, barring significantly above-average loss activity in 2H24. However, underlying margins are likely to remain close to their 2023-2024 peak as reinsurers maintain their underwriting discipline.”
Fitch forecasts the sector’s calendar-year combined ratio to be 88% for 2024 and expects its near-term return on equity to be very strong, at close to 20%.
Market estimates of property catastrophe losses in 1H24 are just over USD60 billion, significantly higher than average, driven by medium-sized peril events, including several convective storms in the US.
Most of the losses were absorbed by primary insurers due to higher attachment points, a situation that will persist in 2025 as reinsurers stay cautious on secondary peril exposure. Climate change brings more frequent and extreme weather activity, making it harder for reinsurers to price catastrophe risk.
We expect capitalisation to remain very strong, exceeding reinsurers’ stated targets and providing good headroom to absorb shocks.
Property and casualty reserve buffers were strengthened in 2023, enhancing balance-sheet resilience and giving flexibility to smooth earnings. Favourable albeit declining overall loss development continues, driven by property and specialty reserve releases but partially offset by adverse development in casualty lines, mostly from 2016-2019.