Global reinsurance premiums will continue to grow in 2024
S&P Global raised its rating on the global reinsurance sector from negative to stable due to higher reinsurance rates and rising investment returns, while Moody’s kept its outlook for the sector stable, Beinsure Media said in a review.
Property-casualty reinsurance rate increases are likely to slow to below 10% on average when contracts renew in January 2024, although underlying yields for the sector will still improve over the year, according to a new report from Fitch Ratings. The COVID-19 pandemic, war, inflation and natural disasters caused by climate change have driven up the cost of reinsurance in recent years, analysts say.
Traditional reinsurers have a greater interest in property risks, and selective capital inflows from alternative providers will complement the offering of catastrophe reinsurance coverage. This should lead to less upward pressure on prices than at the January 2023 renewal.
Catastrophe property reinsurance rates in the U.S. have risen 50% since renewals in July, according to broker Gallagher Re, with states such as California and Florida increasingly hit by wildfires and hurricanes.
Higher prices and improved conditions in 2023 and to a lesser extent in 2024 will continue to support underwriting margins. According to analysts at Fitch, normalizing for core losses, “we expect margins to peak in 2024. Investment income will continue to add to earnings as reinvestment yields still exceed average portfolio yields.”
S&P Global, in its note, pointed to rising rates and tough conditions when reinsurance contracts were renewed through 2023. This has led to the most challenging market in decades for some businesses.
Fitch has updated its global reinsurance outlook and expects the calendar-year combined ratio to improve by 5.5 pp in 2023 due to reduced catastrophe loss reinsurance coverage.
However, analysts forecast the overall loss ratio to increase by about 2 pp in 2024 as the return of more major natural disasters pushes the ratio higher, although underwriting margins excluding catastrophe losses should improve marginally.
Reinsurance rates are likely to continue to rise across all lines of business next year, according to Moody’s survey of global buyers of property and casualty reinsurance, in part due to loss inflation.
Analysts at S&P Global and Moody’s expect rates to rise further in 2024 after reinsurers have borne the brunt of catastrophe losses in recent years.
Moody’s says healthy balance sheets also support its stable view of reinsurers, although it notes that reinsurers remain vulnerable to large catastrophe losses. Insurance losses from natural catastrophes rose to $50 billion in the first half of 2023, the second highest since 2011, reinsurer Swiss Re said.
S&P Global added that challenges such as frequent natural disasters, rising cost of capital, financial market volatility and inflation risk remain.
Fitch forecasts an improvement in the underlying profitability of the global reinsurance sector in 2024 and maintains its outlook for an improvement in the fundamental sector. The rating agency also noted that insurance claims from natural disasters are likely to exceed $100 billion again in 2023, but global reinsurers suffered much less than in 2022.
Negotiated anchor points for reinsurance coverage are higher and aggregate coverage is less available, meaning reinsurers bear a smaller share of claims for medium-sized catastrophes and cedants a larger share, Fitch said. Analysts said they do not expect this to change significantly in 2024 as reinsurers’ appetites for lower levels of property catastrophe risk remain limited.