Global reinsurance poised for growth amidst high interest rates

Higher attachment points in property reinsurance have limited loss frequency.

The global reinsurance segment is expected to have a positive outlook, boosted by a higher interest rate environment, according to AM Best.

Despite Hurricanes Milton and Helene, the reinsurance market remains profitable, with combined ratios for major reinsurers in the first half of 2024 at 82.3% (IFRS 17) and 85.8% (GAAP).  

Higher attachment points in property reinsurance have limited loss frequency, maintaining robust margins.  

Rates remain stable, supported by hurricane activity and cedent-reinsurer recalibrations on loss assumptions.  

Whilst the US hurricane season has been active, losses largely align with pricing expectations, avoiding additional market hardening.  

The segment remains well-capitalised, with consolidations and "flights to quality" likely in the absence of disruptive new players.  

Demand for coverage continues to grow due to natural catastrophe activity and geopolitical uncertainties.  

Increased yields on fixed-income instruments bolster reinsurers' total returns, even amidst geopolitical and economic uncertainties.  

These segments remain well-capitalised and poised for steady growth, with manageable mortality claims and innovations in underwriting and technology contributing to stability.  

Emerging challenges  
Social inflation trends in US casualty lines have prompted adverse reserve development, with accident years 2020–2021 showing signs of deterioration.  

Many reinsurers are reassessing their positions in general liability and auto lines, likely leading to selective underwriting and potential hardening.  

Hurricanes Milton and Helene caused significant losses, particularly through flood and storm surge, though reinsurers were able to mitigate impacts through exclusions and pricing strategies.  

Ongoing adverse reserve developments in casualty books could constrain capacity for primary insurers in upcoming renewals, especially in the January cycle.  

Outlook  
AM Best anticipates the reinsurance industry will remain profitable through 2024 and into 2025, with property reinsurance rates stable and life and health segments offering diversification opportunities. 

However, the casualty business remains a concern, with continued vigilance required for reserve management.

Reinsurers’ ability to navigate these challenges whilst capitalising on higher investment yields and robust demand will be key to sustaining their positive trajectory.