Reinsurers set for strong earnings through 2026

There is a growing appetite for tail-risk protection amidst severe NatCat events.

Reinsurers are poised for robust earnings from 2024 to 2026, following a strong performance in 2023 driven by decade-high investment yields and significant pricing gains in property and property catastrophe (P/C) reinsurance, according to S&P Global Ratings. 

Structural changes implemented since early 2023, including higher attachment points, stricter terms, and repricing of property catastrophe risks, have reinforced the market's resilience and profitability.  

Property and property catastrophe pricing surged through early 2024 but began to ease mid-year. 

However, natural catastrophes like Hurricane Milton in Florida and widespread flooding in Eastern Europe could stabilise or reverse this decline in 2025. 

Casualty pricing, which rose during the 2024 renewals, reflects concerns over economic and social inflation and adverse reserve developments in US long-tail lines, including general liability, professional indemnity, and commercial auto.

Despite structural adjustments, reinsurers remain exposed to rising natural catastrophe risks fueled by climate change, urbanisation, and inflation. 

Casualty risk is also under scrutiny due to heightened litigation costs and larger jury awards driven by third-party litigation funding.  

The reinsurance sector's capital base has reached record levels, supported by strong earnings, asset value recovery, and alternative capital inflows. 

At the end of 2023, the top 19 global reinsurers had a 6.1% capital adequacy surplus at the 99.99% confidence level.

Reinsurers have bolstered risk management to mitigate long-tail casualty reserve vulnerabilities stemming from soft underwriting years (2014-2019). 

These reserves remain sensitive to inflation and social factors, yet reinsurers are addressing severity risks through enterprise risk management programs and disciplined underwriting.  

Growth Opportunities
Reinsurance demand is expected to rise alongside economic expansion, increasing asset values, and heightened risk exposures. 

The sector is also seeing a growing appetite for tail-risk protection as natural catastrophes become more frequent and severe.

Notably, cyber re/insurance continues to gain traction amid heightened awareness of cyber threats.  

Developing economies and expanding market penetration present further growth avenues. In 2023, global economic losses from natural catastrophes totalled $280b, with 60% uninsured. This protection gap highlights the opportunity for public-private partnerships to drive market growth.