The global reinsurance sector is poised for strong earnings growth between 2024 and 2026, building on robust results in 2023, according to an analysis by S&P Global Ratings.
Key drivers include decade-high investment yields and consistent rate increases in property and property catastrophe lines, supported by structural changes implemented since early 2023.
Reinsurers have benefitted from higher attachment points, stricter terms and conditions, and the repricing of property catastrophe risks. These adjustments have strengthened the foundation of the property/casualty (P/C) reinsurance market.
S&P noted that casualty pricing also rose during 2024 renewals due to concerns over economic and social inflation, as well as adverse reserve developments in certain US long-tail lines.
Short-tail pricing, which peaked in early 2024, began to decline mid-year. However, Hurricane Milton, a Category 3 storm that made landfall in Florida in October 2024, along with flooding in Eastern Europe, could stabilize or reverse this trend in 2025, S&P said.
Reinsurers remain heavily exposed to natural catastrophes, with heightened focus on managing casualty risks. While strategic adjustments and structural changes helped reinsurers mitigate secondary peril losses in 2023 and the first half of 2024, S&P highlighted ongoing challenges.
Primary perils, exacerbated by inflation, urbanization, and climate change, continue to pose significant risks.
Casualty risks are under close scrutiny, particularly in US liability lines where economic and social inflation, combined with soft underwriting years from 2014-2019, has left reserves vulnerable. S&P cited rising litigation costs and higher jury awards, often influenced by third-party litigation funding, as key risks to long-tail casualty reinsurance reserves.
The report noted adverse reserve developments in U.S. casualty lines, including general liability, excess casualty, professional indemnity, and commercial auto. While these issues have largely been contained within underwriting results, S&P emphasized the importance of reinsurers’ capitalization and enterprise risk management practices in managing these risks.
Global reinsurance capital reached new highs in 2023, bolstered by strong earnings, recovering asset values, and alternative capital inflows, according to S&P.
The top 19 global reinsurers reported a capital adequacy surplus of 6.1% at the 99.99% confidence level by year-end 2023. This surplus is expected to provide a buffer against potential natural catastrophes and other stressors while supporting top-line growth.
The sector’s strong capitalization positions reinsurers to manage potential losses and maintain profitability as demand for risk transfer solutions grows. S&P noted that re/insurers are likely to benefit from expanding risk exposures and asset values tied to post-pandemic economic recovery, as inflation cools and central banks ease monetary policy.
Demand for reinsurance is rising amid heightened awareness of risks such as cyberattacks and the increasing severity of natural catastrophes. Growth opportunities are also emerging in developing economies, where reinsurance penetration remains low.
S&P highlighted the global protection gap, noting that of the $280 billion in economic losses from natural catastrophes in 2023, approximately 60% were uninsured. This gap offers significant opportunities for re/insurers, potentially through public-private partnerships.
S&P concluded that profitability in the reinsurance sector is expected to remain strong through 2026, underpinned by favorable market conditions, resilient capitalization, and expanding demand for risk transfer solutions.
However, the report also underscored the need for reinsurers to adapt to evolving risks and market dynamics to sustain long-term growth.
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