The global reinsurance segment is set to experience a positive outlook, as per AM Best, mainly due to a higher interest rate environment. Despite the disruptions caused by Hurricanes Milton and Helene, the market has managed to remain profitable. The combined ratios for major reinsurers in the first half of 2024, standing at 82.3% (IFRS 17) and 85.8% (GAAP), are a testament to its resilience. One significant factor contributing to this stability is the higher attachment points in property reinsurance, which have effectively limited loss frequency and safeguarded robust margins.
Rates have stayed steady, bolstered by hurricane activity and the recalibration of loss assumptions between cedents and reinsurers. Although the US hurricane season has been active, losses have largely been in line with pricing expectations, averting any further market hardening. The segment is also well-capitalised, and in the absence of new disruptive players, consolidations and a “flight to quality” are likely. The growing demand for coverage, driven by natural catastrophe activity and geopolitical uncertainties, along with increased yields on fixed-income instruments, is enhancing reinsurers’ total returns, even in the face of geopolitical and economic instabilities.
However, the reinsurance industry is not without its challenges. Social inflation trends in US casualty lines have led to adverse reserve development, with accident years 2020 – 2021 showing signs of deterioration. Many reinsurers are re-evaluating their positions in general liability and auto lines, which could result in selective underwriting and potential market hardening. The significant losses caused by Hurricanes Milton and Helene, especially from flood and storm surge, were mitigated to some extent by reinsurers through exclusions and pricing strategies. The ongoing adverse reserve developments in casualty books might limit the capacity for primary insurers in upcoming renewals, particularly in the January cycle. AM Best anticipates the reinsurance industry will remain profitable through 2024 and into 2025, with property reinsurance rates stable and life and health segments providing diversification. Yet, the casualty business demands continued vigilance in reserve management. The key to maintaining the positive trajectory lies in reinsurers’ ability to overcome these hurdles while capitalising on higher investment yields and strong demand.
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