Fitch Ratings has revised its global reinsurance sector outlook from “improving” to “neutral”, believing the pricing cycle has most likely passed its peak.

In a webinar on the global reinsurance outlook for 2025, Manuel Arrive, Fitch director for Europe, Middle East and Africa, said: “We expect that the trends in the main credit drivers for the sector will remain broadly stable in the next 12 months. Currently, the sector is in a very good shape, with very strong capitalisation and record financial performance by historical standards.”

The ratings agency expected market conditions to remain broadly favourable and supportive of strong returns.

Balance sheet and profitability will remain resilient in 2025, but further improvements in fundamentals from this point are less likely, Mr Arrive said.

“Pricing in property and casualty remains a key challenge for reinsurers,” he stated. “This is due to the complexity of climate change dynamics and the effect of extreme weather patterns.”

Fitch senior director Brian Schneider said the Atlantic hurricane season has been quiet so far, but is only just reaching its busiest point.

“We will see how the frequency plays out in terms of reserve development,” he said.

Fitch said annual insured losses of $100 billion to $150 billion could become the new normal, and revealed losses in the industry were just over $60 billion in the first half of this year.

“That is significantly above average,” Mr Arrive said, laying the blame for the figures on a number of severe convective storms in the United States, combined with mid-sized events such as floods in countries such as Germany and the United Arab Emirates.

Mr Arrive said: “Last year had fewer higher-severity events, but still saw global insured loss in excess of $100 billion. The majority of losses in the first half of the year have been absorbed by the primary insurance and have stayed below the reinsurers’ budget.”

He credited this to actions reinsurers took last year to reduce exposure to frequent events, increase attachment points and move away from aggregate covers.

The ratings agency predicts insurance structure changes are likely to persist into next year.

“The reality is that weather-related natural catastrophes are becoming more frequent, severe and unpredictable,” Mr Arrive said. “Swiss Re is projecting 5 to 7 per cent annual growth in annual insured losses.“

Economic growth is subdued but stable with Fitch forecasting annual growth of 1.4 per cent in developed markets from 2024 to 2026.

“That is still supportive of demand from primary insurers,” Mr Arrive said.

On the positive side, Fitch expects a disciplined market with great adequacy and, importantly, strict terms and conditions holding firm, despite increasing competitive pressures.

“Revenue growth should remain steady, driven by a structural rise in demand for reinsurance, protection across the board, property and casualty, life and health and importantly, speciality lines,” Mr Arrive said. “Neutral factors include fairly balanced supply and demand dynamics.”

Meanwhile, capital has been growing faster than demand, closing the gap in property and casualty.

“That also has a stabilising effect on pricing, and renewal capacity was driven by the larger capital base of existing players rather than new capacity,” Fitch said.