Credit rating agency S&P Global Ratings has released a report detailing the changes in the global reinsurance industry and their impact on industry ratings.
S&P changed its view of the global reinsurance industry from negative to stable. It had a negative view of the industry since May 2020 when the COVID-19 pandemic started, but structural changes that emerged during the 2023 reinsurance renewals have changed the agency's outlook.
“We expect these green shoots will take root and help address industry challenges. Reinsurers have had to quickly adapt to evolving conditions amid more frequent and severe natural disasters and an abundance of unprecedented economic and geopolitical events. High inflation, COVID-19, and the Russia-Ukraine conflict have had untimely negative effects on an already overburdened sector,” the report said.
Among the recent changes in the global reinsurance industry, reinsurance pricing was the most prominent.
The report explained that increasing reinsurance pricing – combined with enhanced underwriting measures such as stricter terms and conditions, increasing attachment points, scaled-down limits, and fewer aggregate covers – and increasing investment income and life reinsurance earnings at pre-pandemic levels bolster the industry's confidence in facing challenges and earn its cost of capital in 2023-24.
“Our stable view of the global reinsurance sector reflects our expectations of credit trends over the next 12 months, including the distribution of rating outlooks, existing sector-wide risks, and emerging risks,” the report said.
According to S&P, the combined ratio of the top 20 reinsurers across the globe was 96.0% in 2022. The positive trend continued in the first half of 2023 (H1 2023), with combined ratios ranging from mid-80s to the low 90s.
“The improving results have come in response to changes in reinsurers' strategies, increases in pricing, and tighter T&C,” the report said.
S&P expects the overall favourable reinsurance pricing to continue, adding: “We expect the industry will post more favourable results with a combined ratio of 92%-96%, including a catastrophe load of 8 to 10 percentage points (ppts), and a return on equity (ROE) of 9%-12% in 2023-2024, barring any outsize catastrophe losses.”
