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A new report from the broker and consultant Aon, “Reinsurance Market Dynamics”, said that equity reported by global reinsurers rose to a new high of $602 billion at September 30, 2024, which was an increase of $40 billion relative to the end of 2023. This, it said, showcased a healthy market especially for investment returns. It said there were plenty of other areas for reinsurers to be investigating for further yield in 2025.
The positive numbers in 2024 were driven principally by strong retained earnings. “Unrealised gains on bonds contributing directly to equity also provided a tailwind, reflecting declining interest rates in the period. New start-up reinsurers remained absent in 2024,” it said.
The renewal period for 1/1/2025 was expected to see “a feeling of ‘steady as she goes” with no serious threats to the return to profitability of the last few years”. However, various factors around the new US administration could see the relative calmness of the North American market in 2024 quickly upended.
Aon’s report highlighted the impressive investment returns many reinsurers saw over the course of 2024 and what benefits this had brought to the wider market’s financial health.
“The first nine months of 2024 saw a continuation of the trends established in 2023,” it said. “The average combined ratio across 25 global reinsurers surveyed was 91%. Major losses generally remained within allocated budgets, despite elevated natural catastrophe activity.
It added that “Investment returns were strong, reflecting higher ordinary yields and unrealised gains on bonds and equities, resulting in an average return on equity of 16.2% (annualised)”.
“Valuations have generally moved higher, with share prices reflecting a second year of strong earnings for most and increasingly active capital management (higher dividends and share buybacks),” said Aon in the report.
The report highlighted where gains had been made in investment returns for reinsurers over the period.
“Investment returns are making a growing contribution to overall earnings, driven by strong operating cash flows (boosting assets under management), higher interest rates and buoyant stock markets,” he said. “Across 14 companies surveyed, the average annualised ordinary investment yield was 4.1% in the first nine months of 2024, up from 3.5% a year earlier.”
In associated figures, RenaissanceRe had the highest Ordinary Investment Yields (Annualised) of those surveyed at just under 10%, reported Aon. Second in investment yield was Everest, then W.R. Berkley, SiriusPoint, and AXIS.
For return on equity (RoE), Aon said that in most cases, “business growth, moderate major losses and favourable capital markets combined to generate strong returns on equity in the first nine months of 2024”.
“The average result across 22 companies surveyed was 16.2% (annualised), which was in-line with the prior year period,” it said.
For an outlook in 2025, Aon said that capital was building quickly “from already very strong risk-adjusted levels and most reinsurers are clearly looking to grow in 2025” in short-tailed Property and Specialty lines.
One of the biggest success stories of 2024 was the resurgence of Insurance-Linked Securities (ILS) that has happened over the post-pandemic years. Last year, a report in June from Gallagher Re highlighted ILS activity ahead of what was thought to be - and ended up being- an active Atlantic Hurricane season.
“The alternative capital market is on course to end 2024 at an all-time high,” said Aon. “As of Q3 2024, Aon estimated the total size of the ILS market was $113 billion. In 2024 there were $17 billion of catastrophe bonds issued, bringing the total outstanding catastrophe bond market to $47.0 billion, representing an 11% increase in 2024 and a 34% increase since January 1, 2023.”
Aon said that this growth rate for a market that has existed for over a quarter century indicates ceding companies see growing value in complementing their overall reinsurance and retrocession purchases with catastrophe bonds.
It also said that the ILS market was providing opportunities. “The insurance-linked securities market benefited from relatively benign global catastrophe losses ceded to the ILS market in 2024,” it said. “Investors generated strong returns over the past two years due to high premium adequacy and minimal claim payments. These returns amounted to unprecedented cash positions, and by the start of the fourth quarter, investors had healthy levels of capital to allocate towards year-end 2024 transactions.”
With these fundamentals in place, 2025 could be an interesting year for investment teams and reinsurers.
