Fitch Ratings has revised its global reinsurance sector outlook to ‘improving’ from ‘neutral’ to reflect the sector’s strengthening financial performance into 2024.

“Near-term price rises are likely to outpace increases in claims costs, a Fitch analyst said, ”and we expect underwriting margins to peak next year.”

The agency said: “Meanwhile, rising reinvestment yields and strong demand for reinsurance should increasingly support earnings.

“We believe 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.”

Fitch forecasts the sector’s combined ratio to be 94 per cent for 2024 and expects its near-term return on capital to exceed its 8 per cent to 10 per cent cost of capital.

Further price rises in property lines are likely in 2024, together with tighter terms and conditions, after several years of poor underwriting results due to inadequately priced risks, the impact of climate change on claims, and unexpectedly high inflation.

However, the increases are likely to be more moderate than in 2023 as prices approach or surpass rate adequacy.

Prices for casualty lines should be stable in 2024 due to an ample allocation of reinsurance capital and significant repricing by primary insurers in recent years to offset high levels of social inflation.

Fitch expects the sector to maintain very strong capital in 2024. However, better underwriting margins could lead to greater capital repatriation if capital cannot be deployed to grow business at attractive margins.

Renewed interest from institutional investors, due to higher expected returns, could lead to an influx of alternative capital to the sector, and Fitch expects the abundance of traditional and alternative capital to lead to a gradual softening of the reinsurance market from 2025.