The global reinsurance market continues to show resilience, with AM Best maintaining a positive outlook for the segment, citing stable technical margins, diversification in life reinsurance, and improved investment income as key drivers.
Reinsurers have seen steady improvement in underwriting margins since 2021, bolstered by higher rates and stricter terms. Following market dislocations in 2023, the sector experienced one of its strongest years, with combined ratios falling below 90% and returns on equity exceeding 20%.
Improved property reinsurance results, supported by higher attachment points, played a significant role in limiting loss frequency.
In the first half of 2024, large European and US/Bermuda reinsurers reported combined ratios of 82.3% (IFRS 17) and 85.8% (GAAP), respectively. Although losses from Hurricanes Helene and Milton in the second half are expected to moderately affect third- and fourth-quarter results, full-year earnings for 2024 are projected to remain profitable.
Hurricanes Helene and Milton, part of an active US hurricane season, caused significant flooding and storm surge damage, much of which was outside the scope of commercial insurance coverage.
While reinsurers will absorb some losses, these events are generally within pricing assumptions and are unlikely to drive further market hardening. Property reinsurance rates are expected to remain stable through 2025.
While property reinsurance has driven much of the positive outlook, concerns about social inflation in US casualty lines present a challenge. Several reinsurers reported adverse casualty reserve development at the end of 2023, primarily linked to accident years 2019 and prior.
Although accident year 2020 showed some improvement, ongoing development in casualty lines, including for years as recent as 2020 and 2021, suggests sustained pressure on margins.
Casualty lines were a focal point during Monte Carlo renewals in 2024. Many reinsurers have indicated reduced appetite for certain general liability and auto lines. As a result, further market hardening in casualty reinsurance may occur, with reinsurers becoming increasingly selective and potentially limiting capacity for primary insurers in the January renewal cycle.
The life and health reinsurance sector has remained stable, offering diversification benefits to large global reinsurers. While claims related to elevated mortality impacts have leveled off, the industry continues to assess underwriting practices and explore premium rate adjustments.
Reinsurers are also examining technological advancements, such as artificial intelligence and digitization, to enhance operational efficiency and better anticipate future trends.
The positive outlook for global reinsurance is partly attributable to sustained higher interest rates. Reinsurers have benefitted from improved investment income streams, as new money has been allocated to higher-yield fixed-income instruments.
Although interest rates have slightly declined, they remain higher than those tied to maturing bonds in reinsurers’ portfolios, supporting stable returns.
Geopolitical tensions, recent US elections, and broader economic uncertainties could influence future rate trends, but reinsurers are expected to continue earning higher levels of investment income over the next three to five years.
The global reinsurance market is poised for a stable 2025, particularly in property lines, while reinsurers adjust strategies in casualty business amid social inflation concerns. Life reinsurance and investment income are expected to provide continued support for the sector’s overall performance.
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