Reinsurance market softens after post-2021 hard cycle peak

The report noted that the industry is currently oversupplied with capital.

The reinsurance market is expected to soften in the medium term despite long-term growth potential from climate change-driven demand, according to Morningstar’s latest sector outlook.

The report noted that whilst rising global temperatures are increasing the severity of natural disasters, boosting the need for insurance and reinsurance, the industry is currently oversupplied with capital. 

This excess capacity is pushing prices down, particularly in property catastrophe lines.

The reinsurance cycle, which hardened after major losses in 2021, has now peaked. 

Risk-adjusted prices have started to fall, with Hannover Re reporting a 5.4% decline in natural catastrophe excess-of-loss coverage during the January 2025 renewals. 

Munich Re also saw risk-adjusted prices drop 2.5% in its April renewals, whilst Scor reported price declines of up to 15% in climate-exposed lines across North America and Europe. 

Swiss Re, despite growing premiums by 7% in January, also faced lower risk-adjusted prices mid-year.

Morningstar expects reinsurer profits to stagnate and earnings to decline over the next few years as falling prices feed through to results. 

The firm projects that industry earnings may bottom out around 2028.

Amongst the major reinsurers, Scor is seen as the least exposed to natural catastrophe risks and is expected to offer stronger returns relative to peers. 

Swiss Re, by contrast, has been expanding its natural catastrophe book, which Morningstar said could make its revenue more volatile in the near term.