P&C reinsurers post strong Q1 underwriting income

The average combined ratio for the selected reinsurers was 84.2% in Q1.

Property and casualty (P&C) reinsurers globally showed strong underwriting income, attributable to consistent rate increases and lower natural catastrophe losses in the first three months of the year (Q1 2024).

High interest rates have benefited reinsurers as they replace maturing fixed-income investments with higher-yielding assets, positively impacting investment income, unveiled Morningstar DBRS in a commentary note.

The selected Bermuda P&C reinsurers reported solid net earnings, buoyed by positive underwriting results.

Despite looming challenges such as natural catastrophes, interest rate volatility, and geopolitical uncertainties, the outlook for the global P&C reinsurance market remains positive.

In Q1 2024, the average combined ratio for the selected reinsurers was 84.2%, down from 90.1% in 2023. 

The reinsurance pricing environment remains favourable, with reinsurers charging higher rates and increasing contract volume due to persistent hard market conditions. 

The industry experienced lower-than-expected natural catastrophe losses in Q1 2024, although Q1 is typically not a reliable indicator for the rest of the year.

Sustained high interest rates have started to benefit reinsurers, contributing positively to investment income as they reinvest maturing fixed-income investments into higher-yielding assets. 

Whilst global inflationary pressures are easing and some countries have lowered interest rates, credit spreads have tightened, potentially affecting fixed-income yields long-term. 

However, the slower pace of interest rate reductions allows reinsurers time to adjust their investment portfolios. Reinsurers also face spread risk and equity market risks, which could cause significant realized or unrealized losses due to global economic conditions.

The selected Bermuda P&C reinsurers reported a cumulative net income of $2.6b in Q1 2024, up from $1.8b in Q1 2023, with an average combined ratio of 84.6%. 

However, Renaissance Re Holding saw a net income reduction due to large unrealised losses driven by interest rate increases, affecting portfolio value through profit and loss.

The reinsurance industry's outlook for 2024 remains positive due to favourable pricing, high fixed-income reinvestment yields, and strong capital positions. 

However, potential headwinds include natural catastrophes, interest rate volatility, geopolitical tensions, and a global economic slowdown. 

Climate change and growing coastal populations exposed to natural catastrophes, such as hurricanes, are ongoing concerns. 

Industry fears of an active Atlantic hurricane season in 2024 are rising, with Hurricane Beryl being the earliest Category 5 Atlantic hurricane on record, indicating potentially significant future losses. Nonetheless, the industry's strong capitalisation mitigates some concerns.