The 2024-2026 outlook for reinsurers’ earnings looks positive following the robust operating results seen in 2023 where reinsurers achieved their highest profits in years, S&P analysts stated in a recent report.
Growth in 2023 was fueled by decade-high investment yields and consistent rate increases in property and catastrophe lines (short-tail lines).
The property and casualty (P&C) reinsurance market has experienced substantial improvements since early 2023, driven by significant price increases and structural modifications, the report also noted.
These changes, such as higher attachment points, tighter terms and conditions, limited aggregate covers, and the repricing of property catastrophe risk, have established a solid foundation for the market.
Casualty insurance prices increased in 2024 renewals due to inflation and rising claims costs, particularly in long-term lines like liability. Prices for short-term lines peaked in early 2024 and slightly declined by mid-year, but Hurricane Milton and other catastrophes could push them up again in 2025.
Analysts stated: “Reinsurers remain significantly exposed to natural catastrophes, with a keen focus on casualty risk. Strategic positioning and structural changes have helped reinsurers avoid elevated natural catastrophe losses from secondary perils in 2023 and first-half 2024. However, they still face potential outsized losses from primary perils, which have become more severe and frequent due to inflation, urbanisation, and climate change.
“Casualty risk is closely monitored, with U.S. liability loss reserves vulnerable to economic and social inflation, especially from 2014-2019 soft underwriting years. Increased litigation costs and higher jury awards, influenced by third-party funding, pose a primary risk to the adequacy of long-tail casualty reinsurance loss reserves.”
S&P also highlighted that several insurers have reported adverse developments in U.S. casualty lines such as general liability, excess casualty, professional indemnity, and commercial auto.
This means that, up to now, the negative impacts of these issues have been limited underwriting results. In order to manage severity risks, reinsurers are generally in a strong financial position with plenty of capital, and maintain sophisticated risk management programs to keep them in check.
“Strengthened capitalization continues to anchor the reinsurance sector. Global reinsurance capital has reached new highs due to robust earnings, recovering asset values, and new alternative capital inflows,” analysts continued.
Adding: “ The top-19 global reinsurers’ capital adequacy was 6.1% redundant at the 99.99% confidence level at year-end 2023, and is expected to remain so over the next couple of years. This capital strength buffers against outsized natural catastrophes and other stresses, while supporting top-line growth.”
Moreover, S&P also expects profitability to remain strong, driven by favourable market conditions. As economic growth increases asset values and risk exposures drive the higher demand for re/insurance products.
Although uncertainties persist, the positive economic environment, coupled with cooling inflation and supportive central banks cutting interest rates, suggests a favourable climate for sustained profitability, according to the report.
Analysts concluded: “Demand for reinsurance is further bolstered by the increasing need for greater tail-risk protection amid more frequent and severe natural catastrophes. In addition, growth is propelled by the rising demand for specific re/insurance lines, such as cyber re/insurance, which has grown significantly due to heightened awareness of cyber risks.
“Growth will also be supported by developing economies and increasing reinsurance market penetration. In 2023, global economic losses from natural catastrophes totaled $280 billion, with about 60% uninsured. This protection gap offers an opportunity for re/insurers, potentially through public-private partnerships.”
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