Despite the recent lower renewal pricing, reinsurers will continue making good money, the credit rating agency, Fitch, has determined.

One of the three main nationally recognised statistical rating organisations in the United States, Fitch said that global reinsurers’ profitability will remain strong in 2025 despite lower risk-adjusted prices for most business lines when reinsurance contracts were renewed January 1.

Fitch said: “The lower prices reflect an abundance of capital, with the reinsurance cycle now past its peak, but market conditions remain supportive of strong risk-adjusted returns.

“Fitch expects combined ratios to hover around 90 per cent in 2025 and the sector return on equity to fall slightly to 17 per cent from 19 per cent in 2024. The sector outlook remains ‘neutral’.”

Reinsurers entered 2025 in a position of strength, with capitalisation buffers and reserve adequacy bolstered by the record profits of the past two years. Capacity was also enhanced by an influx of capital from traditional reinsurers and institutional investors, attracted by the sector’s strong underwriting returns.

Fitch said: “We believe reinsurers’ increasing risk appetite and desire for growth was also a factor in the price reductions. However, the reductions were not accompanied by any notable easing in contract terms and conditions, with reinsurers maintaining most of the improvements in programme structures that they achieved in recent years.

“Despite the rate reductions, we expect the sector’s premium income to increase in 2025, driven by higher volumes.

“Insured property catastrophe losses were about $140 billion in 2024, according to market estimates, marking the fifth consecutive year of insured losses exceeding $100 billion.

“The losses were driven by hurricanes and severe convective storms (both $50 billion), as well as other medium-sized perils, such as flooding in Europe and the Middle East ($13 billion).

“However, the vast majority of these losses (85 per cent to 90 per cent) were absorbed by primary insurers due to higher attachment points, a situation that will persist in 2025 as reinsurers stay cautious on secondary peril exposure.

“As a result, natural catastrophe losses in 2024 were generally within reinsurers’ budgets, which attracted capital to the sector, adding to pressure on pricing.

“Property reinsurance prices fell by 5 per cent to 15 per cent for loss-free accounts at the January renewals, with more remote, high attaching layers, which have the highest margins, most affected. Price increases for loss-affected regions were up to 20 per cent.

“In specialty insurance, renewal prices were stable or slightly lower, while US casualty rates were generally flat or slightly higher, depending on cedents’ loss experience, reserve development and portfolio mix.

“Capacity in the casualty sector was more constrained than in the property and specialty segments, and ceding commissions were flat or slightly down.

“Reinsurance sector capital has increased by more than 20 per cent from its 2022 low point, driven by improved earnings and higher asset values. Alternative reinsurance capacity has also grown, benefiting from the favourable pricing environment for property catastrophe risks.

“We expect alternative reinsurance capacity to continue expanding in 2025, supported by cyber catastrophe bond issuance, further reinforcing the sector’s capital headroom to absorb earnings volatility.

“The severe fires still burning in the Los Angeles area will result in insured losses that materially exceed highs from past wildfire events.

“The losses will represent a significant portion of reinsurers’ 1Q25 natural catastrophe budgets but we do not expect reinsurer ratings to be affected.

“The potential impact on pricing at subsequent reinsurance renewals will depend on the ultimate level of reinsured loss and the remoteness of such an event relative to catastrophe loss expectations.”