Why reinsurers post second-highest returns in 2024

Net premiums written grew 5.7% in 2024.

Global reinsurers recorded their second-highest return on equity (ROE) in seven years in 2024, supported by strong underwriting and investment income, despite a heavier tax burden and the continued effects of IFRS 17 adoption, according to AM Best.

The credit rating agency’s DuPont analysis found that underwriting income was the main driver of surplus growth in 2024, followed by investment income. 

These helped keep ROEs above the 9.5% cost of equity capital, even as reserve leverage fell compared to 2023.

Whilst most implemented it in 2023, Swiss Re did so in 2024, pushing leverage lower but improving retained earnings through higher premiums and tighter terms. 

Net premiums written grew 5.7% in 2024, whilst gross reserves rose only 0.5%.

Tax costs increased compared to 2023, when Bermuda-based reinsurers benefited from a deferred tax asset credit. 

Although these companies have since begun offsetting taxes using the deferred balance, the relief was less significant than the one-off gain in 2023, leaving 2024’s effective tax rates higher.

Across the Top 25 global reinsurers, which represent about 90% of the market’s gross premiums written, ROE reached 17% in 2024, compared with 22% the previous year. The industry maintained underwriting discipline despite heavy natural catastrophe losses and social inflation, leading to the lowest combined and operating ratios in at least seven years. 

Retained earnings were lifted by underwriting profits and investment income, although share buybacks, dividends, and unrealised losses weighed on surplus growth.

The group’s reinsurance float shrank by 4.5% in 2024 to about $590b, largely due to IFRS 17’s reserve discounting. 

This compared with a 6.2% increase in 2023. Investment income, however, remained steady and contributed about half of operating income.

Looking ahead, AM Best noted that the January 2025 California wildfires already consumed around 40% of the year’s catastrophe budget. 

The agency expects reinsurers’ operating performance in 2025 to fall from 2024 levels but remain profitable, with ROEs likely to stay above the 9.5% cost of equity and settle in the mid-teens.