Reinsurers Expected To Maintain Strong Profits Despite Price Drops

Global reinsurers are expected to maintain strong profitability in 2025, even as risk-adjusted prices fell across most lines of business during the January 1 contract renewals, Fitch Ratings said in a statement. According to Fitch, the price declines reflect an abundance of capital and a reinsurance market that has passed its peak. Despite these reductions, market conditions remain favorable, with combined ratios likely to stay near 90 percent and sector return on equity projected to decline slightly to 17 percent from 19 percent in 2024. Fitch's sector outlook remains neutral.

Per Fitch, the record profits of the past 2 years have significantly bolstered reinsurers' capital reserves, ensuring they entered 2025 with strong financial buffers. The influx of capital from traditional reinsurers and institutional investors, attracted by strong underwriting returns, also contributed to this stability. According to Fitch, reinsurers' growing risk appetite and ambitions for expansion played a role in the rate reductions, although terms and conditions for contracts have largely remained unchanged.

Despite these price decreases, Fitch expects premium income to rise in 2025, driven by higher volumes. For property catastrophe risks, Fitch said insured losses reached roughly $140 billion in 2024, marking the fifth consecutive year with insured losses exceeding $100 billion. The losses were largely due to hurricanes and severe convective storms, each causing $50 billion in damages, as well as flooding in Europe and the Middle East, which totaled $13 billion.

Per Fitch, primary insurers absorbed 85 to 90 percent of these losses because of elevated attachment points, a trend that reinsurers are expected to maintain in 2025 to limit their exposure to secondary perils. Natural catastrophe losses in 2024 were generally within reinsurers' budgets, Fitch said, contributing to renewed investor confidence and additional pressure on pricing. For property reinsurance accounts without losses, prices fell between 5 and 15 percent at the January renewals, while loss-affected regions saw price increases of up to 20 percent.

In specialty insurance, Fitch said renewal prices were largely stable or slightly lower, while US casualty rates ranged from flat to slightly higher, depending on cedents' loss history and portfolio composition. According to Fitch, capacity constraints were more pronounced in the casualty segment than in property and specialty markets, with ceding commissions either flat or slightly reduced.

Fitch also reported that reinsurance sector capital has grown by over 20 percent from its 2022 low, driven by improved earnings and rising asset values. Alternative reinsurance capacity has expanded as well, particularly in property catastrophe risks, and Fitch expects further growth in 2025. The issuance of cyber-catastrophe bonds will likely add to this expansion, reinforcing the sector's ability to absorb earnings volatility.

According to Fitch, the ongoing wildfires in the Los Angeles area are expected to result in insured losses that significantly exceed previous wildfire records. While these losses will account for a considerable portion of reinsurers' first-quarter catastrophe budgets, Fitch does not anticipate any negative impact on reinsurer ratings. Fitch said the extent to which pricing will adjust during future renewals will depend on the ultimate reinsured loss levels and how this event aligns with expectations for catastrophe exposure.