Reinsurers’ underwriting margins expected to peak in 2024 – Fitch Ratings

A new report by Fitch Ratings reveals reinsurers are projected to see their underwriting margins reach a peak in 2024, attributed to significant price increases and tighter terms and conditions secured during the 2023 renewals and in early January 2024.

The report suggests that reinsurance market conditions may begin to soften in 2025 as the attractive returns expected are likely to draw in more new capital. The January 2024 renewals witnessed a broad increase in prices, generally aligning with claims inflation patterns, which saw a rise of 5%-10% in most lines of business.

However, the renewal negotiations were more intricate for lines impacted by geopolitical conflicts, such as the Russia/Ukraine and Gaza situations, affecting areas like political violence and terrorism.

In 2023, the capital available from both traditional reinsurers and alternative capital providers saw a significant double-digit growth. This increase was supported by a combination of factors: strong earnings generation, stabilization of financial markets, and, for some, the transition to the International Financial Reporting Standard 17 (IFRS17).

Additionally, the market for catastrophe bonds experienced record issuance last year, buoyed by the absence of major loss events, appealing pricing, and strong investment returns on collateral pools. This influx of capital is expected to contribute to expanded reinsurance capacity in 2024.

Despite the lack of a major US hurricane event in 2023, insured natural catastrophe claims remained substantially above the 10-year average at approximately US$100 billion. The protection gap, the difference between total economic losses and insured losses, continued to be significant, with the insurance and reinsurance industry covering only about 40% of economic losses. This ongoing trend is expected to sustain demand for reinsurance protection, especially against the backdrop of increasing weather-related claims.

Looking ahead, Fitch Ratings anticipates an improvement in the underlying profitability of the global reinsurance sector in 2024. This projection is based on the continuation of strong underwriting margins coupled with rising investment income. Consequently, Fitch is maintaining its improving fundamental sector outlook for the industry.

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