Global Reinsurance Outlook for 2025: Challenges and Cautious Optimism

The global reinsurance sector is facing a more cautious outlook for 2025 as market dynamics shift and reinsurers grapple with rising catastrophe risks. According to Fitch Ratings, the sector's outlook has been revised from "improving" to "neutral," with expectations that the recent peak in pricing may begin to soften in the coming year.

One key area of concern for reinsurers is the increasing frequency of weather-related losses due to climate change, particularly secondary perils, such as convective storms. These medium-sized events have driven significant losses in recent years, prompting reinsurers to tighten terms and conditions for catastrophe coverage. This structural shift in the market has left primary insurers with higher risk retentions, while reinsurers have largely stayed within budget, according to Fitch.

Despite these challenges, profitability remains strong, with reinsurers benefiting from robust capital buffers and reserve adequacy. The sector's calendar-year combined ratio is forecasted to remain close to 88 percent in 2024, while return on equity is expected to hover around 20 percent. Fitch also notes that reinsurers are likely to maintain underwriting discipline, avoiding significant exposure to lower layers of catastrophe risk, particularly in the face of growing climate-related uncertainties.

As the sector moves into 2025, reinsurers are well positioned to absorb shocks, with capital reserves exceeding stated targets, Fitch said. However, market participants will need to stay cautious, particularly regarding secondary peril exposure, as they navigate a more competitive and potentially volatile environment, said Fitch.

This balanced approach suggests that while challenges loom, the sector is equipped to maintain its resilience in the face of evolving risks, per Fitch findings.