The reinsurance sectoror global has covered its own cost of capital in 2023 for the first time in four years and this is expected to happen also in 2024-2025consolidating its stable view on the sector. This is what emerges from the new report by S&P Global Ratings on the sector.
The study highlighted that the excellent results of reinsurers in 2023 reflect years of underwriting efforts, as well as being favored over the last decade by high investment prices and returns that have benefited the industry’s bottom line. These conditions have extended into 2024, although prices in some lines have begun to moderate since mid-year renewals.
The short-term outlook
The profitability prospects for reinsurers they are solid for 2024-2025following robust operating results in 2023 and the first half of 2024, with the highest profit margins in recent years, thanks to favorable pricing in the short-tail branches (Fire, Accident, etc.), to a good investment income and to a strengthened capitalizationwith a safety margin that offers a 99.99% probability of covering any losses.
Positioning and pricing
The strategic positioning of reinsurers has allowed them to avoid mostly the high ones losses related to natural disasters secondary during the past year, although they remain exposed to potential losses significant due to primary natural disasters.
The casualty branch pricing remains under close observation, as the reserves for US liability claims remain vulnerable to the risk of inflation, especially for the weakest subscription years, from 2014 to 2019.
Natural disasters chapter
Last year was the fourth consecutive year that the Global insurance losses due to natural disastersthey have reached the level higher than 100 billion of dollars, even though reinsurers avoided most of the costs.
The dynamics in 2023 and 2024 are unique because most of the catastrophes are result of secondary dangers – mainly convective storms – which generally do not reach the thresholds required to trigger reinsurance policies due to their greater frequency and lesser severity.
“However,” the report underlined, “this year reinsurers could find themselves under pressure in case of primary dangers such as hurricanes or earthquakes, which are less frequent than secondary hazards but can cause more severe losses and become more prevalent.”
