Reinsurers to meet cost of capital through 2025: S&P Global Ratings

Favourable reinsurance pricing continues to support profitability.  

The global reinsurance sector maintains a stable outlook, supported by strong operating profits, robust capitalisation, and favourable pricing, according to S&P Global Ratings.

Reinsurers are expected to earn their cost of capital in 2024 to 2025, benefiting from strong investment income and underwriting discipline, stated S&P Global Ratings analyst Taoufik Gharib. 

Capitalisation remained redundant at the 99.99% confidence level at the end of 2023 and is projected to stay resilient through 2024, providing a buffer against potential financial stress.

Favourable reinsurance pricing, particularly in short-tail lines, continues to support profitability.  

Challenges include elevated natural catastrophe losses driven by inflation, urbanisation, and climate change, as well as concerns over economic and social inflation, particularly in U.S. casualty lines.

Financial market volatility, geopolitical risks, and high capital costs also pose headwinds.  

Global reinsurers posted a strong combined ratio of 91.5% in 2023, a significant improvement from the four-year average of 99.5%.

This trend persisted in early 2024, with GAAP filers reporting combined ratios in the low 90s and IFRS 17 undiscounted ratios in the low to mid-90s.