Reinsurers’ underwriting margins are likely to peak in 2024 on significant price rises and tighter terms and conditions achieved in 2023 and in early January 2024 renewals, Fitch Ratings says in a new report. Reinsurance market conditions are likely to start to soften in 2025, as strong expected returns will attract an increasing amount of new capital.
The January 2024 renewals saw prices increase broadly follow claims inflation patterns, which amounted to 5%-10% in most lines of business. Negotiations proved to be more complex for those lines affected by geopolitical conflicts in Russia/Ukraine and Gaza, such as war on land, political violence and terrorism.
Available capital from traditional reinsurers and alternative capital providers grew in double digits in 2023. Reinsurers benefited from strong earnings generation, the stabilization of financial markets and – for some – the move to the accounting standard IFRS17. Catastrophe bonds witnessed a record issuance last year due to very attractive returns on the back of the absence of large loss events, attractive pricing and a strong investment return on collateral pools. The rise in available capital supports our view of increasing reinsurance capacity in 2024.
Fitch Ratings-Frankfurt am Main/Chicago-23 January 2024: Reinsurers’ underwriting margins are likely to peak in 2024 on significant price rises and tighter terms and conditions achieved in 2023 and in early January 2024 renewals, Fitch Ratings says in a new report. Reinsurance market conditions are likely to start to soften in 2025, as strong expected returns will attract an increasing amount of new capital.
The January 2024 renewals saw prices increase broadly follow claims inflation patterns, which amounted to 5%-10% in most lines of business. Negotiations proved to be more complex for those lines affected by geopolitical conflicts in Russia/Ukraine and Gaza, such as war on land, political violence and terrorism.
Available capital from traditional reinsurers and alternative capital providers grew in double digits in 2023. Reinsurers benefited from strong earnings generation, the stabilisation of financial markets and – for some – the move to the accounting standard IFRS17. Catastrophe bonds witnessed a record issuance last year due to very attractive returns on the back of the absence of large loss events, attractive pricing and a strong investment return on collateral pools. The rise in available capital supports our view of increasing reinsurance capacity in 2024.
In 2023, insured natural catastrophe claims remained well above the 10-year average at USD100 billion, despite the absence of a large-scale US hurricane event. The protection gap between total economic losses and insured losses remained large as the insurance and reinsurance industry covered only around 40% of economic losses. We believe this trend underpins demand for reinsurance protection, against the backdrop of higher weather-related claims.
Fitch forecasts an improvement in underlying profitability for the global reinsurance sector in 2024 on continued strong underwriting margins and rising investment income, and is maintaining its improving fundamental sector outlook.