Fitch: Strong reinsurance underwriting results should continue into 2025

Non-life reinsurers should produce favourable underwriting results in the second half of 2024 and into next year, according to Fitch Ratings. 

Fitch released its mid-year reinsurance report this week, and said the reinsurance market had reached an equilibrium, with “increased capital supply from accumulated earnings meeting higher demand for reinsurance protection from cedents”.

“As a result, Fitch expects market rates to be mostly flat in 2025 and terms and conditions to broadly hold steady,” the agency said. “As such margins will peak in 2024, although reinsurers should continue to produce favourable returns above the cost of capital, as underwriting discipline is maintained. 

“The disciplined environment is supported by limited new capacity entering the market, deteriorating US casualty loss-cost trends from social inflation and heightened catastrophe and climate change risk.” 

Fitch said mergers and acquisitions activity was subdued as the hard market shifted reinsurers’ focus “at least temporarily, from acquisitions towards organic growth”. 

“In addition, market valuations for companies have increased, making potential acquisitions more expensive and therefore less likely to be executed,” the agency said. “Reinsurance M&A deal could return as organic opportunities slow and the market inevitably turns soft again.” 

Fitch said it expected strong supply growth in the alternative reinsurance capital markets to continue, barring substantial ILS catastrophe losses in the second half of this year. Capital levels of insurance-linked securities (ILS) continued to reach record in the first half, it said.

Among Bermuda reinsurers, Fitch noted RenaissanceRe’s net premium written growth of 35% in the first half, which was driven by its 2023 purchase of the Validus companies from AIG. Hamilton and Aspen posted 38% and 30% NPW growth respectively. Arch Capital also had strong growth of 23%. 

On rates in the mid-year reinsurance renewals, Fitch said; “Property market prices at the mid-year 2024 reinsurance renewals were flat to down for risk/catastrophe loss-free business and up only slightly for loss-hit business.

“Fitch expects property reinsurance market conditions in 2025 to remain supportive of strong returns, even if pricing softens and terms weaken somewhat in the event 2H24 catastrophe losses prove to be more moderate than expected. 

“Property catastrophe retentions and attachment points held steady at the recent reinsurance renewals, although the use of non-concurrent policy terms was much less common,” the report said.

It added that capacity was ample at the higher layers of cat risk, but reinsurers’ appetites remained limited for lower layers, aggregate treaties and per risk covers where elevated property losses persisted.

“Reinsurers are not interested in returning to providing cedents earning protection,” the report said. 

The report said casualty reinsurance rates rose in the mid-year renewals by up to 15% for loss-affected and up to 10% for non-loss affected accounts, although it said professional and financial lines including directors’ and officers’ lines, continued to experience rate pressure. 

“While economic inflation has eased, the push for higher casualty prices in the US reflects social inflation and litigation finance trends with elevated damage awards from nuclear verdicts,” the report said.

It added that this was especially true for commercial auto and general liability from the 2015-2019 soft market. It said there was also concern about the 2021-2023 period, which would push  casualty rate rises to keep up with higher loss costs. 

In specialty lines, price rises were seen for terrorism and political risk where capacity was limited as global unrest rose, while cyber prices were flat, but could rise following the Microsoft/CrowdStrike outages. 

On M&A, Fitch said a subdued market could turn when “the market inevitably softens and organic growth opportunities subside” and “companies that have accumulated capital from sizeable profits could look to acquire re/insurers that were less successful in taking advantage of the hard market”. 

Fitch said Hamilton’s initial public offering in 2023 had increased its financial flexibility, while Aspen, which paused an IPO when valuations provided to be insufficient for owner apollo Global Management, may reassess the market in 2025. 

It said other Bermuda companies could consider IPOs in 2025 if market conditions improve, including Convex, Vantage and  Ascot.

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