Highlights
Reinsurers' earnings prospects for 2024-2026 look promising, following robust operating results in 2023. The industry has seen its highest profits in years, thanks to decade-high investment yields and consistent rate increases in property and property catastrophe lines (short-tail lines). Gains were bolstered by significant price hikes and structural changes since early 2023, such as higher attachment points, stricter terms and conditions, limited aggregate covers, and repricing of property catastrophe risk, laying a solid foundation for the property/casualty (P/C) reinsurance market.
Casualty pricing also rose during 2024 renewals due to economic and social inflation concerns, and adverse reserve developments in certain U.S. long-tail lines. Short-tail line pricing peaked in early 2024 and slightly declined by mid-year. However, Hurricane Milton--a Category 3 storm--made landfall in Florida, on Oct. 9, 2024, and other tail events such as Eastern Europe's floods, could stabilize or even reverse this trend in 2025.
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, urbanization, 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.
Several reinsurers have reported adverse developments in U.S. casualty lines such as general liability, excess casualty, professional indemnity, and commercial auto. These issues have so far been contained within underwriting results. To manage severity risks, reinsurers are typically well-capitalized and maintain sophisticated enterprise risk management programs.
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. 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.
Profitability is expected to remain strong, supported by favorable market prospects. As economic growth increases asset values and risk exposures, demand for re/insurance rises. Despite uncertainties, post-pandemic economic expansion continues, supported by governmental stimuli. Recessionary concerns are easing as inflation cools and central banks cut interest rates.
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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Table 1
| Reinsurers' strong and improving operating performance | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (%) | 2021 | 2022 | 2023 | 2024f | 2025f | 2026f | ||||||||
| Net combined ratio | 96.6 | 96.2 | 91.5 | 92-96 | 92-96 | 92-96 | ||||||||
| (Favorable)/unfavorable reserve developments | (2.8) | (1.7) | (2.0) | (1)-(2) | (1)-(2) | (1)-(2) | ||||||||
| Net natural catastrophe losses' impact on the combined ratio | 9.5 | 9.2 | 4.4 | 8-10 | 8-10 | 8-10 | ||||||||
| Accident-year combined ratio, excluding natural catastrophe losses, reserve developments, and pandemic losses | 90.0 | 88.7 | 89.1 | 86-87 | 86-87 | 86-87 | ||||||||
| Return on equity | 9.3 | 2.5 | 21.4 | Low to mid teens | Low to mid teens | Low to mid teens | ||||||||
| Net investment yield | 2.3 | 1.9 | 3.4 | 3.5-4.0 | 3.5-4.0 | 3.5-4.0 | ||||||||
| The top 19 global reinsurers are Arch, Ascot, Aspen, AXIS, China Re, Convex, Everest, Fairfax, Fidelis, Hannover Re, Hiscox, Lancashire, Lloyd's, Markel, Munich Re, RenaissanceRe, SCOR, Sirius, and Swiss Re. Return on equity in 2024f, 2025f, and 2026f will depend on investment performance. 2021-2022 data is based on generally accepted accounting principles and International Financial Reporting Standard (IFRS) 4. For 2023, 2024f, 2025f, and 2026f, we used the undiscounted combined ratios for IFRS17 filers. Return on equity and net investment yields are based on consolidated financials, which include other non-P/C reinsurance businesses. f--Forecast. Source: S&P Global Ratings. | ||||||||||||||
Related Criteria
- Insurers Rating Methodology, July 1, 2019
- Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
Related Research
- Asia-Pacific Reinsurance Sector Update: Improvements Are Underway, Oct. 30, 2024
- Country Risk Assessments Update: October 2024, Oct. 24, 2024
- Hurricane Milton: The Implications For Rated U.S. Insurers And Global Reinsurers, Oct. 9, 2024
- U.S. Insurers' Earnings Could Take A Hit From Hurricane Helene, Oct. 3, 2024
- Global Reinsurers Must Maintain Discipline To Cement Strong Performance Amid Casualty Risks, Sept. 3, 2024
- S&P Global Ratings' Top 40 Global Reinsurers In 2024 And Reinsurers By Country, Sept. 2, 2024.
- Reinsurers Show Growing Appetite For Natural Catastrophe Risks, Aug. 30, 2024
- Reinsurers Dodge Severe Convective Storm Losses Amid Rising Threats, Aug. 7, 2024
- Assessing Europe's Global Reinsurers Under IFRS 17, July 2, 2024.
- Global Cyber Insurance: Reinsurance Remains Key To Growth, Aug. 29. 2023.
This report does not constitute a rating action.
| Primary Credit Analysts: | Taoufik Gharib, New York + 1 (212) 438 7253; taoufik.gharib@spglobal.com |
| Michael Zimmerman, Englewood 303-721-4575; michael.zimmerman@spglobal.com | |
| Johannes Bender, Frankfurt + 49 693 399 9196; johannes.bender@spglobal.com | |
| Secondary Contacts: | Charles-Marie Delpuech, London + 44 20 7176 7967; charles-marie.delpuech@spglobal.com |
| Robert J Greensted, London + 44 20 7176 7095; robert.greensted@spglobal.com | |
| Research Contributor: | Tanveen K Bamrah, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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