Global reinsurance rates will continue to rise in 2024. Fitch & Goldman Sachs outlooks

Global reinsurance rates are likely to continue to rise in 2024, though at a slower pace than in 2023, and prices will start to fall in 2025, according to Fitch Ratings.

Reinsurers have pushed up rates in recent years in response to the COVID-19 pandemic, war, inflation and climate change-fuelled natural catastrophes, boosting their profitability.

Property catastrophe reinsurance rates were likely to rise in the low double digit percentage range next year, while casualty – or liability – reinsurance would stay flat, due to increased competition in the market.

Robert Mazzuoli, a senior director at Fitch

Our current expectation is the hard market environment will remain for 2024. We expect very incremental price increases, it will be lower than the ones we have seen. Beyond that, we would expect a softening to start in 2025

Robert Mazzuoli, a senior director at Fitch

According to Natural Disaster Trends, most natural disaster databases show a significant decline in the number of annual global events prior to 1980. 3 global drought events were among the 10 costliest disasters, which underlines the growing significance of the peril on a global scale.

These occurred in the United States, Europe and China. But data analysis has not completely removed the data gap, it has made major progress in identifying a large portion of events.

Fitch raised its global reinsurance sector outlook to “improving” from “neutral” on rising prices, following an upgrade by S&P Global earlier this week.

Global reinsurance rates will continue to rise in 2024. Fitch & Goldman Sachs outlooks

Moody’s has indicated that reinsurance prices are poised to experience further upward momentum across all sectors in the year 2024, continuing the trend observed in recent times.

Moody’s based its assessment on the outcomes of its annual survey encompassing 42 prominent global property and casualty reinsurance buyers.

The survey findings reveal that the expected price hikes are primarily driven by persisting claims inflation, particularly evident in property-related sectors where reinsurance capacity appears somewhat constrained.

Despite these escalating costs associated with reinsurance protection, the majority of buyers do not plan to expand their reinsurance purchases in 2024. This indicates that primary insurers are gearing up to shoulder a more substantial portion of future losses (see Global Reinsurance Sector Forecasts for 2024).

The anticipated price surge in 2024 is expected to remain in the mid-single-digit range, which represents a more moderate increase compared to the substantial price spikes witnessed throughout 2023.

An overwhelming 70% of respondents from the survey foresee additional price escalations in both property and casualty insurance lines in the upcoming year. Roughly 44% of the surveyed buyers anticipate that casualty reinsurance rates will surge by more than 5%, mirroring trends observed in 2023 (see Reinsurance Rates for U.S. & Florida NatCat Policies).

Reinsurance Rates for U.S. & Florida

However, analysts at Goldman Sachs expect rate firming to persist in reinsurance lines of business through the rest of 2023, with a deceleration in the January 1st, 2024, renewal rate changes, and pricing to normalise in late 2024.

Despite reinsurance pricing normalisation anticipated late next year, analysts still expect to see continued underlying margin improvement for reinsurance companies from adjustments in terms and conditions and also changes in top line rate.

Although, while higher reinsurance rates have persisted through 2023, Goldman Sachs does not feel that it has thus far been sufficient to restore multiple years of robust returns on equity.

By examining data for the Global and US property catastrophe rate on line index, analysts explored how significant rate on line rises are to the bottom line.

Analysts looked at the portion of premiums and losses attributed to property cat reinsurance, then used an average historical loss ratio from 2014-2022, applying rate on line increases in 2023 to the top line, and then calculated what the expected change in property cat reinsurance loss ratios would be.

The greatest impacts to the LR and EPS came from companies with the greatest exposure to property catastrophe losses.

When looking on a consolidated basis, the impacts of these pricing actions were smaller than our initial expectations, contributing to the idea that while the property catastrophe reinsurance pricing increases are significant, they have only modest implications for the overall consolidated company total, improving ROEs ~50bps-5pts only.

Yana Keller   by Yana Keller