Despite losses from hurricanes Helene and Milton in the second half of the year, underwriting profit margins remain strong for reinsurers and 2024 is poised to be another solid year for the sector, leading ratings agency AM Best to maintain its positive outlook for the global reinsurance industry.
AM Best revised its reinsurance sector outlook to positive from stable back in June, citing robust reinsurer profit margins and the expectation of continued underwriting discipline.
It was the first time the rating agency’s outlook on the industry had been positive for years, after turning negative on the space in 2014 in the height of the soft market.
Today, though, AM Best has announced that it has maintained its positive sector outlook for numerous reason, including still robust profit margins, stable property rates and terms which are unlikely to soften in the near-term, the industry’s strong capitalisation, increasing demand for coverage, and the fact higher interest rate yields are starting to earn out.
“Reinsurers’ underwriting margins have improved steadily since 2021, with substantial improvement to rates and terms following the market dislocation in 2023. In 2023, the global reinsurance segment generated one of its best years in recent history, with several large reinsurers reporting combined ratios below 90.0 and returns on equity exceeding 20%,” said Carlos Wong-Fupuy, senior director, AM Best.
Further, through the first nine months of 2024 underwriting margins have continued to improve for reinsurers, and AM Best’s large European reinsurer and US and Bermuda reinsurer composites reported H1 2024 combined ratios of 82.3% and 85.8%, respectively. Of course, some deterioration in the combined ratio is likely as a result of Helene and Milton, but overall, the rating agency expects full-year results to be favourable.
“Reinsurers expect to bear some losses from Helene and Milton. We expect the two will have an impact on third- and fourth-quarter earnings, but reinsurers should generally still report profitable full-year results for 2024,” said Dan Hofmeister, associate director, AM Best.
While the tailwind in property reinsurance is clearly the driver of AM Best’s positive outlook for the global reinsurance sector, the entity notes that both the life/annuity and health reinsurance segments also remain well capitalised and placed for strong growth.
However, casualty reinsurance is somewhat of a headwind, specifically amid growing concerns about U.S. casualty social inflation trends. A number of reinsurers reported adverse casualty reserve development at year-end 2023, and during this year some players have strengthened their reserves fairly significantly, suggesting an overall deterioration in casualty underwriting margins.
“The most concerning aspect of these actions is that development has now extended into years such as 2020 and 2021. Additionally, we have witnessed historic material reserve actions in line with annual reviews, so there remains further risk of material development in the market for 2024. This will likely cause some reinsurers to re-evaluate their casualty positions during the January renewal cycle and could constrict capacity for primary companies,” said AM Best.
