In a reassuring turn of events, the mid-year results for global non-life reinsurers in 2023 have showcased robust underwriting profits, according to Fitch Ratings.
The 18 non-life reinsurers under Fitch’s scrutiny have collectively achieved an impressive reinsurance combined ratio of 88% during the first half of the year. This figure takes into account moderate catastrophe losses of 6.7 percentage points (pp).
The positive momentum is expected to persist as the year unfolds. Fitch anticipates that the second half of 2023 and even 2024 will continue to favour reinsurers, as rate increases stay ahead of loss cost trends.
This optimistic outlook is rooted in the steady growth of non-life reinsurance net premiums, which saw a commendable 7% increase during the first half of 2023 compared to the same period in the previous year. This growth trend is projected to continue, albeit at a somewhat slower pace due to declining price increases and the potential dampening effects of a looming recession.
However, the impact of higher inflation has bolstered premiums, thanks to the elevated value of insured assets.
The life and health reinsurance sector has also seen notable improvements in profitability. The rise in interest rates and the subsiding of pandemic-related losses have contributed to this positive shift.
Additionally, shareholders’ equity recorded an impressive growth of 8.6% during the first half of 2023 compared to the end of 2022. This growth is attributed to augmented underwriting gains and positive investment outcomes.
Reinsurers have been benefiting from resurgent equity markets and higher reinvestment rates resulting from the increase in interest rates. Furthermore, unrealised investment losses on fixed maturities are on the decline, with a majority of bonds expected to be held until maturity.
The current market conditions continue to be favourable for reinsurers. The interplay of selective supply and growing demand has fostered an environment conducive to enhanced margins. This optimistic scenario is expected to extend well into 2024.
Reinsurers with the capacity to provide coverage are poised to derive the most significant advantages from these conditions, particularly in the context of a reinsurance-driven hard market in the property sector. Reinsurers have once again assumed their role of providing capital protection, with primary insurers taking on more risk, leading to reduced earnings volatility.
Market consolidation in the reinsurance industry is making a resurgence, propelled by robust reinsurance renewals that have improved the expected returns for risk, especially in catastrophe coverage.
Several well-positioned companies are seizing the opportunity presented by the best reinsurance underwriting environment in decades. Some are opting to acquire additional platforms to complement their already substantial organic growth prospects.
This trend is anticipated to contribute to greater discipline within the market, as less competitive capacity exits.
One of the notable developments in the sector is the growth of alternative capital supply. Insurance-linked securities (ILS) funds have been actively raising capital throughout 2023, buoyed by the increasingly attractive returns in the sector. Particularly noteworthy is the strong issuance of catastrophe bonds.
Fitch foresees continued growth in the alternative reinsurance capital market for the remainder of 2023, with an unprecedented number of catastrophe bonds expected to be issued.
