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A report from Fitch Ratings has said that reinsurers will still see a healthy 2025 for profits despite a lacklustre 1/1 January renewals period this year, which saw prices fall.
The perseverance of profitable times will be good news for investment teams at reinsurance as the industry has already faced a harsh start to the year with the catastrophic fires in California.
Sluggish economic outlooks in many countries, particularly in Europe, and unease over Donald Trump’s economic agenda have also led to concerns over the sector’s profitability in recent times.
"Wherever you look there is a feeling of ‘steady as she goes’ with no
serious threats to the return to profitability of the last few years."
In the run-up to the renewal season, David Worsfold wrote for Insurance Investor that “Rarely has the world’s reinsurance community approached the critical 1/1 renewal period with such equanimity”.
“Almost wherever you look there is a feeling of ‘steady as she goes’ with no serious threats to the return to profitability of the last few years,” he said. "However, profitability was never far from the industry’s mind with nat cats and issues around the politicisation of ESG efforts at the front of mind."
Fitch’s report said there were many positives despite the lower renewal rates.
“The lower prices reflect an abundance of capital, with the reinsurance cycle now past its peak, but market conditions remain supportive of strong risk-adjusted returns," said the ratings agency in its official take on the 1/1 renewals.
Fitch said that it expected combined ratios to hover around 90% in 2025 and the sector return on equity to fall slightly to 17% from 19% in 2024. The sector outlook remains ‘neutral’.
“Alternative reinsurance capacity has also grown, benefiting from the
favourable pricing environment for property catastrophe risks."
It added that the reinsurance sector capital had increased by more than 20% from its 2022 low point, driven by improved earnings and higher asset values, which could soften any blows coming this year.
“Alternative reinsurance capacity has also grown, benefiting from the favourable pricing environment for property catastrophe risks,” it said. “We expect alternative reinsurance capacity to continue expanding in 2025, supported by cyber catastrophe bond issuance, further reinforcing the sector’s capital headroom to absorb earnings volatility.”
Aon released a report earlier this month saying 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.
