Reinsurance margin peak on the horizon as profits draw capacity: Fitch
Reinsurance underwriting margins will peak in 2024 and market conditions will begin to soften in 2025 as the market slowly begins to fall victim to its own 2023 successes, analysts at Fitch have claimed.
“We expect the underwriting margins of our rated global reinsurers to peak in 2024,” Fitch analysts said of the earn-in of recent market gains, including the relatively stable 1.1.2024 renewals.
“We expect market conditions to start to soften in 2025 as a rising risk appetite, against the backdrop of strong expected returns, will attract an increasing amount of additional capital from traditional reinsurers and alternative capital providers.”
The latest round of January renewals showed “modest” price gains in property, where rate only “broadly followed claims inflation patterns” after the more serious rest of 2023. Newly achieved T&C and structures were retained, but major rate gains were restricted to loss-affected accounts.
In casualty, reinsurers failed in their declared battle for new rate to counter perceived threats from social and other inflation. “In casualty, reinsurers did not succeed in pushing through more significant price increases following under-reserving for older underwriting years and concerns on social inflation,” Fitch said of its take.
Towards an eventual tipping of the scales from demand to supply, traditional reinsurers may have gained some 11% to their tally of reinsurance capital to end-year, partially reversing the losses in 2022, Fitch estimated.
But alternative capital, measured by actual engagement and not just a leisurely presence on a balance sheet, outpaced that growth in reinsurer capital. Mark alt cap up 13% for the year to $105 billion, exclusively on the all-time high issuance of catastrophe bonds which has begun to compete with traditional reinsurers on the top layers of cat towers.
“We believe this will continue in 2024 despite tighter cat bond pricing, which will exercise increasing margin pressure, particularly on upper layers of property cat protection,” Fitch analysts said.
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