Global Reinsurance Market: Special 2025 Renewal

After the particularly high claims experience of 2017 and the Covid years, the global reinsurance market is calmly embarking on the 2025 renewals. The recovery of recent years confirms the good health of reinsurers, whose profitability has been steadily improving since 2022.

Despite the last three hurricanes, at the end of September and beginning of October 2024, the market is showing good stability, with financial performances that are more solid than ever.

As we approach 2025, the sustained demand for coverage and the decline in claims experience will only strengthen the position of reinsurers. The latter shall continue to benefit from favorable underwriting conditions after years of sharp rises in reinsurance rates.

Evolution of the reinsurance market: 2014-2023

Figures in millions USD

⁽¹⁾ Direct insurance premiums Source: Sigma
⁽²⁾ Source: Atlas Reinsurance Reports 2025: a study carried out by Atlas Magazine based on data from 143 reinsurers based in Europe, America, Bermuda, Africa, Asia and the Middle East
⁽³⁾ Source: AM Best
⁽⁴⁾ Sources: AM Best and S&P

Global reinsurance market: trends and cycles

The reinsurance market is cyclical in nature, alternating between hard times and soft times, with periods of high profitability automatically resulting in downward rate readjustments.

Reinsurance cycles: 2014-2024

The 2014-2016 period

During these three years, the market went through a prosperous period, with a combined ratio set between 89.7% and 95.3% and a return on equity (ROE) ranging between 8.4% and 11.6%.

Reinsurance capacity was relatively stable. As natural catastrophe losses remained below the average of previous years, reinsurers managed to maintain satisfactory results, despite the weakening of their pricing power.

The 2017-2020 period

During this period, the previous trend had been reversed. Three major hurricanes (Harvey, Irma and Maria) hit the United States in 2017, seriously damaging the profitability of all players. These three events, which set the market back 90 billion USD, pushed up reinsurers' combined ratio to 110.3%.

The 2017-2020 period was therefore marked by:

• a high frequency of major natural catastrophes and secondary perils, which is impacting the return on equity, rendering it more volatile,
• excess reinsurance capacity (traditional and alternative), while demand is not increasing to absorb the excess capital,
• the start of the Covid-19 crisis which shook the market, with unprecedented pandemic claims levels, particularly affecting the life, health, event risks and business interruption classes of business.

To restore profitability, reinsurers tightened underwriting conditions, raising rates and updating treaty terms. Reinsurers are particularly targeting natural disasters and pandemic risks.

The correction cycle underway at the end of 2020 would lead to a sharp rise in rates, a trend set to linger on for several years.

The 2021-2023 period

In 2021, the market began to recover, with combined ratio turning green again, with a gain of 8.1 points in one year (96.4% in 2021 compared with 104.5 in 2020), while ROE was rising to 9% from 2.4% at the end of 2020.

During this period, reinsurers were gradually rebalancing their accounts. Some players immediately withdrew purely and simply from certain lines of business sustaining high claims (natural catastrophe risks in the southern United States), while others chose to reduce their risk profile while increasing rates.

This period of loss reduction has led to improved ROE for both traditional and alternative reinsurers.

All in all, according to AM Best, reinsurers reported a very high level of profitability in 2023, a performance not seen for more than ten years. According to the rating agency, at the end of 2023, European reinsurers that have adopted IFRS 17 standards achieved ROE of 18.6%, while those established in the United States and Bermuda reported a GAAP ROE of 23%.

Standard & Poor's, on its part, estimates ROE for the industry as a whole at 21.4% by the end of 2023.

The 2023-2024 period

At the last renewals in 2024, analysts noted a better balance between supply and demand for reinsurance. The market did not witness a general increase in rates, but rather segmented adjustments. Rate reductions have even been reported for certain treaties that have not suffered significant losses in recent years.

This better-balanced 2024 market is bolstered by:

• the absence of new players, which has enabled traditional reinsurers to maintain their positions without any easing of renewal conditions.
• the decline in the frequency of major catastrophic events.

The 2025 renewal

The reinsurance market is more serene than ever thanks to the persistence of certain facts such as:

• the decline in natural catastrophe claims in the United States,
• the adjustment of capital strategies,
• the policy of risk transfer and the deployment of venture capital,
• the achievement of attractive profits and returns,
• reinsurers' considerable flexibility,
• the existence of sharply increasing capacities.

In such an environment, the industry will try to keep rates in line with risk and to maintain adequate underwriting conditions. Excessive risk-taking or overexposure seems to be out of the question. The market is in a position allowing absorption of a reasonable level of losses while increasing capacity.

The reinsurance market environment

The reinsurance market is directly impacted by the resurgence of risks and the increase in the cost of claims. Climate change, political and social conflicts, inflation, cyber security, pandemics, increasing community urbanization, etc. are all potential dangers that the market must monitor.

On the regulatory front, the implementation of IFRS 17 is forcing insurers and reinsurers to adapt to new requirements and to reorganize a whole range of their activities.

Adoption of the new IFRS 17

From 1 January 2023, many reinsurers have adhered to the new IFRS 17, mainly in Europe, Asia Pacific and the Middle East. Companies based in the United States and Bermuda are still using US GAAP (Generally Accepted Accounting Principles). However, some US reinsurers operating internationally do apply IFRS 17 for the purposes of their international subsidiaries or for reporting.

The impact of the new standard on capital and earnings stands as a key concern for reinsurers, with its implementation resulting in major changes, mainly in the management of balance sheets, contracts and the preparation of financial statements.

The new IFRS 17 has brought greater transparency by aligning accounting principles with a more rigorous valuation of liabilities and profits. Furthermore, it has influenced reinsurers' risk management, pricing and reporting strategies.

For AM Best, the transition to the new standards has meant the disappearance of many key performance indicators, historically used to compare results at international level. For example, IFRS17 has eliminated the concepts of premium and loss ratio.

However, the agency maintains that this change in accounting methods should not affect the capitalization and overall strength of reinsurers' balance sheets, nor should the switch to IFRS 17 have a major impact on the market.

Social change

Key demographic factors, such as urbanization and population growth, have their impact on demand for reinsurance. Today, 56% of the world's population lives in urban areas, which according to the World Bank generates 80% of the world's GDP.

This concentration of economic activity has triggered growing need for insurance products, particularly life, health and property schemes.

In this context, reinsurers play an essential role in providing primary insurers with the necessary capacity to meet customer demand, particularly in regions exposed to natural disasters.

Third party liability issues

The amounts of damage caused by professional liability policies are skyrocketing across the Atlantic. As a result, reinsurers are increasingly concerned about rising litigation and legal counsel costs under such policies.

As a result of inflation, liability risks in the United States are demanding particular attention from reinsurers such as Swiss Re, SCOR, Everest, AXIS Capital and others, henceforth required to consolidate their reserves in anticipation of potential losses.

Munich Re, whose liability business accounts for 40% of the group's portfolio, is also concerned about the increase in losses in the liability market, particularly in the United States, where the underwriting conditions for policies need to be tightened.

Over the last five years, professional liability losses in the United States have risen by an annual average of 11%, reaching 143 billion USD in 2023, much higher than the 95 billion USD in insured losses sustained due to natural disasters worldwide in the same year.

The profession also fears that the cost of litigation in the European Union will increase over the next five years as a result of:

• the introduction of legal reforms facilitating access to third-party litigation funding,
• the introduction of new regulations facilitating class actions and the judicialization of disputes, notably the adoption of the European directive on representative actions,
• the extension of product safety regulations,
• the increase in the number of disputes relating to environmental damage,
• misuse of data and artificial intelligence,
• the growing health risks associated with certain products.

In addition, social inflation is on the rise in the UK, Australia and Canada, where the legal system is based on case law (jurisprudence).

Cyber security

Cyber risk is now a de facto reality, posing a formidable threat to individuals and businesses of all sizes.

Insurers and reinsurers have been raising the issue of the insurability of cyber risk since the 2023 renewal, against a backdrop of great political tension. Munich Re, the main underwriter of this type of risk, has completely excluded cyber warfare from its portfolio for the 2025 renewals. By the end of 2024, however, the German reinsurer will have written a total of 1.8 billion USD in cyber premiums.

In the absence of the technical tools needed to properly manage cyber underwriting, most market players are being on the safe side dealing with such a risk, advocating strict underwriting conditions and higher premiums, especially in highly vulnerable sectors such as finance, healthcare and telecommunications. To date, the capacity available for cyber risk remains limited.

Artificial intelligence and new technical risks

Artificial intelligence (AI) can accelerate the transformation of the profession. The use of new technologies represents a development opportunity for all insurance and reinsurance activities. As the risk environment becomes increasingly complex and difficult to quantify, the use of AI may prove useful in improving risk management. However, the risks associated with this new process can be very damaging.

These abuses pertain particularly to excessive innovation, with breaches of data confidentiality, regulatory abuses, increased vulnerability of systems, and the failure or malfunction of AI (autonomous cars, drones, etc.).

Proper use of AI requires not only specific risk transfer mechanisms, but also technical support and appropriate modelling.

Natural catastrophes claims experience

Natural catastrophes that occurred in 2023 caused 250 billion USD in economic losses and set insurers and reinsurers back 95 billion USD in claims.

Europe alone accounts for 109 billion USD of economic losses, which, according to Swiss Re's Sigma report, is the highest bill of all the continents. For the old continent, insured losses amounted to 27 billion USD.

After 2023, 2024 looks set to be all gloom and doom, with Hurricane Beryl pushing the hurricane season in the United States, Mexico and the Caribbean to a premature start in July. This event was followed by two other hurricanes, Helene in September and Milton in October, which, according to a Moody's estimate dated 15 October 2024, should together account for insured losses of between 35 and 55 billion USD.

In addition to the losses caused by hurricane activity in the Gulf of Mexico and the Caribbean, since 2021 the industry has been faced with another series of natural disasters affecting Europe in particular. This region has been particularly hard hit by an increase in extreme weather events, including forest fires (Greece, Spain and Portugal in 2023), flooding and other secondary perils such as severe convective storms (Germany in 2021, Italy and Slovenia in 2023 and France and, more recently, Spain in 2024).

European losses are exacerbated by two phenomena: excessive urbanization that is ill-suited to the natural conditions of the region, and high property prices. In Italy, insured losses following convective storms rose by 170% in 2023.

In the first half of 2024, initial estimates of insured losses due to these natural events were estimated at 60 billion USD worldwide. This is much higher than the 37 billion USD that represent insurers' average incurred losses over the last ten years.

The beginning of 2024 was rich in storms and medium-sized events, in particular several convective storms in the United States. At this rate, as a result of climate change and according to estimates by French reinsurer SCOR, the annual cost to be borne by the market could soon exceed 150 billion USD, well above the 95 billion USD in losses reported in 2023.

To counter the upsurge in climatic risks, the profession is advocating:

• the development of public-private partnerships,
• investment in risk management solutions, such as the installation of mobile flood barriers in Hungary and Slovakia,
• the establishment of partnerships with insurers to improve data quality and better risk transfer,
• a review of the claims management process.

Political risks and social unrest

A new risk, and not the least important, is of concern to reinsurers today, social unrest, which, in a globally unstable geopolitical context, can give rise to a multitude of large-scale claims. The term social unrest covers strikes, riots and civil unrest.

According to Swiss Re, worldwide claims for this type of risk have increased by 3000% in 20 years.

Some of the most significant social unrest claims in recent years include:

• the Black Lives Matters movement, active since 2013 (United States). This movement caused the degradation of dozens of statues of figures contested by the demonstrators,
• the Yellow Vests movement, active since 2018 (France). This movement has claimed the lives of 11 people and caused injuries to 25 800 others,
• the riots and urban violence of June 2023 (France), which cost insurance companies 793 million EUR,
• the social unrest in New Caledonia in 2024 (France), whose insured losses exceeded 1 billion USD,
• tensions in Martinique and Guadeloupe since 2009 due to the high cost of living.

With the rise in social and political unrest, demand for this type of risk is growing significantly. In many countries, cover for attacks, strikes and civil unrest is compulsory, a measure that contributed to the robustness of this market.

Reinsurance market outlook

In June 2024, AM Best revised its outlook for the reinsurance market upwards from stable to positive.

The agency attributes this revision to the robust profit margins achieved by reinsurers and the strict terms and conditions imposed on the market by these same reinsurers. This drastic price revision comes after years of turbulence.

As for Standard& Poor's, it has considered that the reinsurance market is benefiting from favorable terms and conditions. On this basis, the agency maintains a stable outlook for the market.

According to Standard & Poor's, the sector is in good shape, exhibiting a satisfactory level of profitability. The refocusing on technical profitability seen in recent years remains the main driver of growth in the industry.

Fitch Ratings expects reinsurance rates to stabilize in 2025 and the pricing cycle to be at its peak. Rate increase seems therefore unlike ly due to:

• record profits in 2023,
• the strictest underwriting conditions in over 20 years,
• more resilient balance sheets,
• stable investment income.

Reinsurers should be able to maintain underwriting discipline, despite a moderately more flexible and competitive market, characterized by abundant capacity from traditional and alternative sources.