Global reinsurers are expected to maintain robust profitability throughout 2025, despite a decrease in risk-adjusted prices for many lines of business during the 1 January renewals, according to a new report from Fitch Ratings.
This price decline is attributed to abundant capital availability and a softening in the reinsurance cycle. However, market conditions remain favorable for continued strong returns, with Fitch projecting a combined ratio of approximately 90% and a slight dip in return on equity, forecasted to fall to 17% from 19% in 2024.
Fitch has maintained a neutral outlook for the reinsurance sector. Reinsurers enter 2025 with solid capital buffers and adequate reserves, thanks to record profits over the past two years.
The sector’s capitalization has been further bolstered by contributions from both traditional reinsurers and institutional investors, who have been attracted by strong underwriting returns. Increased growth and risk appetite among reinsurers have contributed to the recent price reductions. Despite these decreases, contract terms and conditions have largely remained stable, preserving the structural improvements made in recent years.
Although rates are lower, premium income is expected to rise in 2025 due to an increase in volumes.
Natural catastrophe losses in 2024 reached approximately $140 billion, marking the fifth consecutive year of insured losses surpassing $100 billion. These losses were driven primarily by hurricanes and severe convective storms, each accounting for $50 billion in damages, as well as medium-sized events like floods in Europe and the Middle East, which amounted to $13 billion.
Primary insurers absorbed 85% to 90% of these losses, benefiting from higher attachment points—a trend that is likely to continue as reinsurers maintain a cautious stance on secondary peril exposure.
In the property reinsurance market, prices for loss-free accounts dropped by 5% to 15%, with the largest reductions seen in high-attaching layers. On the other hand, loss-affected regions experienced rate increases of up to 20%.
In specialty insurance, renewal prices remained largely stable or saw slight reductions. For U.S. casualty insurance, rates were either flat or saw modest increases, depending on cedents’ loss experience and portfolio mix.
Capacity in casualty insurance has been more constrained compared to property and specialty lines, with ceding commissions generally flat or slightly reduced.
Reinsurance sector capital has surged by more than 20% since its 2022 low, bolstered by improved earnings and higher asset values. The expansion of alternative reinsurance capacity has further strengthened the sector, fueled by favorable conditions for property catastrophe risks and the issuance of cyber catastrophe bonds. This growth enhances the industry’s ability to manage earnings volatility and maintain financial stability.
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