Global reinsurers are projected to sustain strong profitability in 2025, despite declining risk-adjusted prices across most business lines during the January 1 contract renewals, according to Fitch Ratings.
The drop in pricing reflects an abundance of capital in the market, signaling that the reinsurance cycle has passed its peak. However, market conditions continue to support solid risk-adjusted returns.
Fitch anticipates that combined ratios will remain around 90% in 2025, while the sector’s return on equity (ROE) is expected to dip slightly to 17%, down from 19% in 2024. With this, Fitch maintains a "neutral" outlook for the sector.
Reinsurers entered 2025 with strengthened capitalization and reserve adequacy, bolstered by record profits over the previous two years. Additional capacity was provided by both traditional reinsurers and institutional investors attracted to the sector’s underwriting performance.
Fitch noted that reinsurers' increased risk appetite and pursuit of growth contributed to pricing reductions. However, these reductions were not matched by significant changes in contract terms and conditions.
Reinsurers preserved many of the structural improvements in reinsurance programs achieved in recent years. Despite lower rates, premium income in the sector is expected to grow in 2025 due to increased underwriting volumes.
Insured property catastrophe losses totaled approximately US$140 billion in 2024, marking the fifth consecutive year with losses surpassing US$100 billion. Major contributors included hurricanes and severe convective storms, each accounting for US$50 billion, along with mid-sized events like flooding in Europe and the Middle East, which caused US$13 billion in losses.
Primary insurers absorbed 85% to 90% of these losses due to higher attachment points, a trend expected to continue in 2025 as reinsurers remain cautious regarding secondary peril exposure. As a result, 2024 natural catastrophe losses largely fell within reinsurers' budget expectations, attracting more capital into the sector and intensifying pressure on pricing.
At the January renewals, property reinsurance rates for loss-free accounts dropped by 5% to 15%, particularly in higher, more remote layers of coverage where profit margins are typically greatest. Conversely, rates for regions affected by losses rose by as much as 20%.
In specialty insurance, renewal pricing was stable or slightly lower. US casualty rates remained generally flat or slightly increased, influenced by cedents' loss histories, reserve development, and portfolio composition. Capacity in the casualty segment was more limited compared to the property and specialty markets, with ceding commissions holding steady or declining modestly.
Reinsurance sector capital has grown by over 20% since its 2022 low, supported by stronger earnings and rising asset values. Alternative reinsurance capacity also expanded, benefiting from favorable property catastrophe pricing. Fitch expects this growth to continue in 2025, driven in part by the issuance of cyber catastrophe bonds, further enhancing the sector’s ability to manage earnings volatility.
Meanwhile, ongoing wildfires in the Los Angeles area are projected to generate insured losses surpassing previous wildfire records. These losses will significantly impact reinsurers' first-quarter 2025 natural catastrophe budgets, although Fitch does not expect them to affect reinsurer credit ratings. The effect on future pricing will depend on the total amount of reinsured losses and how the event compares to industry expectations for catastrophe exposure.
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