S&P warns trade volatility may pressure reinsurer portfolios

Top 19 global reinsurers are expected to absorb around 20% of personal lines losses.

S&P Global Ratings said the global reinsurance industry remains stable despite ongoing market volatility and significant natural catastrophe losses in early 2025. 

The sector continues to show robust capital adequacy and strong operating performance.

Reinsurers have experienced heightened investment volatility triggered by new tariffs imposed by the US and retaliatory measures from other countries. 

Whilst this has led to declines in equity markets, the sector’s conservative investment strategies have limited its exposure. 

Potential losses from hypothetical equity shocks of 15%, 25%, and 35% would result in estimated capital hits of $4.7b, $7.8b, and $11b, respectively. 

Even in these stress scenarios, the sector would retain capital redundancy at the 99.99% confidence level, backed by a $21.5b capital buffer based on year-end 2023 data.

The sector was also hit by the January wildfires in California, with insured losses estimated between $40b and $50b. 

Personal lines accounted for 80% to 85% of the claims. The top 19 global reinsurers are expected to absorb around 20% of these losses, using up about 35% to 40% of their annual catastrophe budgets. 

This leaves an estimated 60% to 65% of their budgets intact for the rest of the year.

Despite the early setback, reinsurers entered 2025 in a strong position due to solid underwriting results in short-tail lines, recovering fixed-income assets, and earnings growth in 2023 and 2024 that exceeded their cost of capital. 

However, the sector remains vulnerable to developments in US casualty reserves, where inflation and rising litigation costs continue to apply pressure.

Stress testing showed that the sector could endure extreme scenarios, such as a 1-in-250-year catastrophe event or a 20% reserve strengthening, whilst maintaining resilience at the 99.95% confidence level.

S&P maintains a stable outlook on the reinsurance sector, citing its strong capital position and defensive strategies. 

However, extended macroeconomic instability and trade tensions may affect premium growth and investment portfolios over time.