Reinsurance rate increases for property catastrophe business are likely to slow to below 10% on average when contracts are renewed in January 2024, according to Fitch Ratings. Improvements in underwriting margins will therefore be less significant than in 2023. Typically, two-thirds of non-facultative reinsurance business is renewed in January, mostly in Europe.

According to Beinsure’s Reinsurance Renewals review, the global reinsurance market is still facing an imbalance between the rising demand for protection being seen and the fact inflows of capital to the sector remain sluggish.

The increase follows a challenging insurance renewal in January 2023, during which reinsurers made less capacity available for working layers and aggregate covers, amid fundamental shifts in pricing and increases to attachment levels

Price increases, and better terms and conditions in 2023, and to a lesser degree in 2024, will continue to support underwriting margins. Normalised for major losses, we expect margins to peak in 2024, according to Fitch’s Global Reinsurers Underwriting review.

Some reinsurance companies were already retreating from the property-casualty insurance market but even the strongest reinsurers have now pulled back, largely through tightening their terms and conditions to limit their aggregate covers and low layers of natural catastrophe protection (see Global Insured Losses from Natural Catastrophes: Perspective & Trends).

Reinsurers’ investment income

Reinsurers' investment income

Investment income will continue to bolster earnings as reinvestment yields are still above average portfolio yields.

The reinsurance market appears to have returned to its pre-soft market state of providing capital protection for cedents, rather than earnings protection.

The reinsurance capital decline was primarily attributed to unrealised investment losses on fixed-income holdings, which comprise over 60% of the average investment portfolio. Although equity holdings were also impacted, constituting less than 8% of the portfolio, they have shown partial recovery in 2023.

Analytics believe reinsurance pricing for natural catastrophe risks will better reflect the impact of climate change on claims, particularly as several reinsurers are cutting back on cover for medium-sized natural catastrophe risks, making pricing less competitive.

Reinsurers are benefiting from a rebound in equity markets and higher reinvestment rates from the rise in interest rates, while unrealised investment losses on fixed maturities lessen with most bonds likely to be held until maturity.

Fitch therefore forecasts an improvement in underlying profitability for the global reinsurance sector in 2024, and is maintaining its improving fundamental sector outlook.

Global Reinsurance Forecasts

Net premiums written183,820197,610
Catastrophe losses12,38017,025
Russia/Ukraine losses
Net prior-year favourable reserve development4,2903,800
Calendar-year combined ratio (%)91.793.6
Accident-year combined ratio (%)94.195.6
Accident-year combined ratio excl. catastrophes/Russia (%)87.186.6
Source: Fitch Ratings

Higher inflation has boosted premiums through higher insured values. Life and health reinsurers profitability improved as interest rates rose and pandemic losses diminished.

Analysis indicates that the top global reinsurance groups experienced a nearly 17% reduction in shareholders’ equity due to rising interest rates, driving their available capital down from USD 475 billion to USD 411 billion.

Insured natural catastrophe claims are likely to exceed USD100 billion again in 2023 but global reinsurers have been far less affected than in 2022 (see Natural Catastrophes Drivers and Lessons for Insurance Industry).

Negotiated attachment points for reinsurance cover are higher, and aggregate covers less available, meaning that reinsurers bear a lower share of medium-sized natural catastrophe claims, and cedents a higher share.

Fitch do not expect this to change much in 2024 as reinsurers’ appetite for lower layers of property catastrophe risk remains limited.

Property reinsurers’ catastrophe losses

Property reinsurers' catastrophe losses

Fitch expect price increases for property catastrophe cover to be higher in loss-affected regions but moderate elsewhere.

Major loss events in 2023 included severe convective storms, particularly in the US. Hailstorms in Germany, flooding in Italy, wildfires in Hawaii, Hurricane Otis in Mexico and the earthquake in Turkiye added to the bill.

Fitch believes reinsurance and retrocession capacity for higher layers of property catastrophe risk should be sufficient to meet demand in 2024.

Traditional reinsurers’ have greater appetite for these layers, and selective capital inflows from alternative capital providers will supplement the supply of cover. This should result in less upward pressure on prices than during the January 2023 renewals.

Reinsurance premium rate increases

Reinsurance premium rate increases

Fitch expect premium rate increases for specialty lines of business to vary widely, depending on the respective loss experience in 2023.

Price rises will be most pronounced in political risk, terrorism and political violence lines due to higher levels of unrest, coups and riots globally. In other specialty lines, we expect mid-single-digit price increases, on average.

In casualty lines, we expect price increase to average in the low- to mid-single digits. The push for higher prices in the US to counter social inflation could lead to mixed results in 2024. Reported claims have started to accelerate again recently.

Fitch has updated its global reinsurance forecast and expects the calendar-year combined ratio to improve by a sizeable 5.5pp in 2023, driven by reduced cover for catastrophe losses.

Fitch forecasts the combined ratio to increase by about 2pp in 2024 as the return of more large natural catastrophe events would push the ratio up although underwriting margins excluding catastrophe losses should marginally improve.

Capitalisation has improved during 2023 from already very strong levels, driven by higher earnings. Fitch expect reinsurers to repatriate more capital in 2024 to satisfy investor expectations, and to maintain underwriting discipline.


AUTHORS: Brian Schneider, CPA, CPCU, ARe – Senior Director Fitch Ratings, Robert Mazzuoli – Director Fitch Ratings, David Prowse – Senior Director Fitch Wire

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