News Reinsurance30 Aug 2024

Global reinsurers' earnings to stay stable in 2H2024 and into 2025

| 30 Aug 2024

Earnings of global reinsurance companies should remain favourable in 2H24 and 2025, as pricing is generally adequate and underwriting discipline should be maintained, Fitch Ratings says in a new report.

Non-life reinsurers posted improved underwriting profitability in 1H24 from 1H23, with manageable losses from catastrophes. Fitch monitored the 1H24 financial results of 19 reinsurers that posted an aggregate reinsurance combined ratio of 84.2%, down from 85.9% in 1H23.

The group of life and health reinsurance operations tracked by Fitch reported a 6% increase in 1H24 pre-tax income. Profitability varied by company based on mortality and morbidity experience, although increased investment income from higher interest rates benefited the whole group.

Capital

Shareholders’ equity among the reinsurers grew by 6% in the first half of 2024 from the end of 2023, driven by increased underwriting and investment income, as well as gains in equity markets.

Companies are expected to maintain strong capitalisation, with continued increases in share repurchases and dividends likely in the second half of 2024 and into 2025 as growth opportunities diminish and investors seek capital returns.

The reinsurance market has achieved a balance between capital supply and demand, supported by increased capital from accumulated earnings and higher demand for reinsurance protection. Fitch anticipates that market rates will remain mostly flat in 2025, with terms and conditions holding steady.

As a result, margins are expected to peak in 2024, though reinsurers are likely to continue producing returns above the cost of capital in 2025 as underwriting discipline is maintained.

This disciplined environment is bolstered by limited new capacity entering the market, ongoing deterioration in US casualty loss-cost trends due to social inflation, and heightened risks related to catastrophes and climate change.

M&A

Merger and acquisition (M&A) activity in the reinsurance market slowed in 2024 as hard market conditions led to a focus on organic growth rather than acquisitions. Additionally, increased market valuations have made potential acquisitions more expensive, reducing the likelihood of deals being executed.

However, Fitch suggests that M&A activity could resume as organic growth opportunities wane and the market eventually softens.

Insurance-linked securities

Capital levels in the insurance-linked securities (ILS) sector have reached record highs, driven by attractive returns. Catastrophe bonds, in particular, have gained favour, outperforming other ILS during recent periods of significant catastrophe losses.

Fitch expects strong supply growth in the alternative reinsurance capital market to continue into 2025, barring any substantial ILS catastrophe losses in the second half of 2024.

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