Reinsurance profits remain strong with robust underwriting and investments – Fitch

Earnings for global reinsurance companies are expected to remain stable and favorable in the second half of 2024 and into 2025, according to a recent report by Fitch Ratings.

The report indicates that pricing remains generally adequate, and underwriting discipline is likely to be maintained.

Fitch Ratings monitored 19 non-life reinsurers, which collectively posted solid underwriting profits in the first half of 2024, with an aggregate reinsurance combined ratio of 84.2%. This figure includes moderate catastrophe losses accounting for 5.9 percentage points.

The report suggests that underwriting results should continue to be favorable through the remainder of 2024 and into 2025, with pricing expected to remain sufficient.

Net premiums for non-life reinsurance increased by 6% in the first half of 2024 compared to the same period in 2023, reflecting strong performance during reinsurance renewals amid favorable market conditions.

While premium growth is anticipated to continue, it may do so at a slower pace as market competition increases. Profitability for life and health (L&H) reinsurers varied based on mortality and morbidity trends, although revenue growth remained robust.

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 capitalization, 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.

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.

Capital levels in the insurance-linked securities (ILS) sector have reached record highs, driven by attractive returns. Catastrophe bonds, in particular, have gained favor, 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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