As reinsurance rates continued to soften at the mid-year renewals, the return on equity (ROE) for full year 2025 is expected to decline from 2024, although remain above the cost of equity and at a higher level than during the most recent soft market years, suggesting continued profitability and strong returns for reinsurers, according to Guy Carpenter.
The reinsurance broker’s mid-year 2025 renewal analysis shows that despite elevated loss activity in the first quarter of 2025, driven by the Los Angeles, California wildfires in January, strong reinsurer performance is expected to continue throughout the year.
According to Guy Carpenter’s data, reinsurers’ ROE was 16.4% in 2024 and is projected to be 15.3% in 2025. This remains well above the cost of equity, which stood at 10.2% in 2024 and is estimated at 9% in 2025, according to Guy Carpenter.
The last hard market peak was in 2023, when return on equity reached 21.9%, significantly outpacing the cost of equity at 10.6%, with reinsurers adding value.
In contrast, earlier years such as 2020 and 2022 were unprofitable and challenging for reinsurers, with ROEs of just 3.4% and 5.7%, respectively, compared to cost of equity of 8.1% and 10.2%.
Though the market has started to soften from the highs of 2023, Guy Carpenter’s analysis anticipates that reinsurer returns will remain at a higher level than during the previous soft market years of 2017 through 2022, with ROE for the sector projected to be 16.1% in 2026 and 15.9% in 2027, with cost of equity at 8.7% and 8.4%, respectively.
Guy Carpenter’s estimate is in line with commentary from some global reinsurers in recent months, with leaders from certain firms highlighting that while rates have come down somewhat, it is from a high base and so remains healthy and is supportive of strong returns for reinsurers in the coming years.
“The current trading environment is one of the most favorable for reinsurers in many years, evidenced by the additional capital being attracted to the sector. We see this as a tremendous opportunity to re-balance the market dynamics in our clients’ favor. More capacity will continue to moderate pricing, give clients more diversification of reinsurance partners, and provide better solutions to protect earnings,” said Dean Klisura, President and CEO, Guy Carpenter.
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