Pricing across most reinsurance lines continued to gradually fall, as it had at the January and April renewals, and rates for loss-free property programmes fell by 10%–15%. In contrast, US casualty pricing was broadly flat, and retrocession pricing and coverage improved. Specialty lines are at varying points in the cycle, with cyber rates still declining and aviation stable
Paris/Chicago/London: Softer pricing at reinsurers’ June and July renewals reinforces Fitch Ratings’ expectation that abundant capacity and rising competition will put further pressure on prices after the 2024 peak.
Declining prices, increased claims severity from natural catastrophe events, and slightly looser terms and conditions (T&Cs) in property lines are likely to lead to lower underwriting margins in 2025. However, pricing remains above historical levels, and sector fundamentals still support strong, albeit off-peak, profitability.
Pricing across most reinsurance lines continued to gradually fall, as it had at the January and April renewals, and rates for loss-free property programmes fell by 10%–15%. In contrast, US casualty pricing was broadly flat, and retrocession pricing and coverage improved. Specialty lines are at varying points in the cycle, with cyber rates still declining and aviation stable.
Underwriting margins are under pressure from sustained price erosion and increased claim severity, most notably from the Los Angeles wildfires and other natural catastrophe losses in 1H25. The full financial impact of the lower pricing since mid-2024 is now becoming evident, with overall underwriting margins slipping due to lower margins on new business. This is partly offset by resilient investment income. Strong reserve adequacy provides a buffer, allowing reinsurers to use favourable reserve developments in most business lines to steer their earnings. However, some liability lines could face more adverse reserve development due to the prolonged effects of social inflation.
The global reinsurance market has ample capacity as rising supply outpaces incremental demand from cedants. This is shifting pricing power to be in favour of reinsurance buyers, particularly in property lines, while the balance remains more even in casualty. Competition is generally focused on price rather than T&Cs. Property reinsurance revenue growth is underpinned by increased risk awareness among cedants and higher insured values, leading to increased coverage. Reinsurer appetite to write US casualty cover is mixed, with some reinsurers increasing their appetite and others withdrawing.
T&Cs are beginning to loosen as reinsurers become more willing to provide protection lower down on programmes, including at lower attachment points and for more frequent return periods. Working-layer and aggregate reinsurance protection are making a comeback, and reinsurers are becoming more open to negotiating T&Cs. The first signs of less stringent T&Cs are emerging, driven by heightened competition and a very gradual relaxation of underwriting discipline.
Fitch will review its global reinsurance sector outlook ahead of the industry’s annual Rendez-Vous de Septembre gathering in Monte Carlo. The sector outlook is currently ‘neutral’.