The reinsurance market in 2024: the dominant trends

Reinsurers are entering the renewals in better shape than in recent years, which were plagued by the Covid pandemic.

The improvement in market results, confirmed by the rating agencies [4], is in line with the actions taken by reinsurers at the time of the 2023 renewal: rate increases, tougher treaty conditions and the development of alternative solutions.

The decline in natural catastrophe claims in the United States [5] in 2023 also points to a return to a better balance between reinsurance supply and demand.

According to the rating agencies, the positive trend in the market, with reinsurance supply and demand better balanced than in the past, is underpinned by the absence of major catastrophic events. The only major loss of the year 2023 pertains to the earthquake in Turkey [6], which has so far been valued at 6 billion USD, a far cry from the sums usually paid out by reinsurers for the cyclones that periodically devastate the coasts of South America.

The capacity available in 2024 for property damage insurance, including natural disasters, should be sufficient. Catastrophic events, which are heavily penalizing the market, will continue to require special attention from reinsurers, with possible rate adjustments and tighter underwriting conditions.

This firmness exhibited by reinsurers will lead to a better risk-sharing between the various market players.

Reinsurance: the 2024 renewal as perceived by rating agencies

Rating agencies are once again commending the resilience of the reinsurance market [7], its resistance to extreme events and its profitability. The assessments of the various agencies hardly vary from one another, although there are a few nuances that can be summarized as follows:

Standard & Poor’s

S&P [8] has revised its outlook for the market from negative to stable. The agency justifies its decision by pointing to a recovery in earnings following rate increases in 2023, higher interest rates and increased investment income.

However, S&P is forecasting less pronounced rate increases than those implemented in 2023. These increases are motivated by the possible resumption of natural catastrophe [9] claims after the lull in 2023.

AM Best

Despite the decline in capacity observed since 2022, AM Best is not expecting excessive pressure on the balance sheets of the main reinsurers [10] in 2024. In the agency's view, the reinforcement measures taken by reinsurers during the 2023 renewals have enabled them to realign their risk profiles, putting them in a strong position to generate underwriting profits.

Again according to the agency, the results exhibited in the first half of 2023 are better than those reported at the same time during the two previous renewals.

Despite this encouraging data, the agency still does not expect a significant influx of additional capital or the arrival of new players on the market in 2024.

This latest observation by AM Best [11] is inconsistent with the trend of previous reinsurance cycles, which have seen new capital arrive after each exceptional catastrophe. This was particularly true after the events of September 2001, the occurrence of Hurricane Katrina in 2005 and Hurricanes Harvey, Irma and Maria in 2017. However, such a process of capacity creation was not repeated in 2020-2022 after the Covid-19 pandemic.

Contrary to past experience, instead of reporting an influx of capital as the 2020-2022 crisis drew to a close, some reinsurers deserted high-risk regions such as Florida and California.

Fitch Ratings

Fitch Ratings [12] has revised its outlook for reinsurance upwards from neutral to positive. The agency justifies this change by:

• the strengthening of the sector's financial performance which are poised to continue in 2024,
• renewed interest from institutional investors in anticipation of higher returns,
• strong capitalization with the inflow of alternative capital.

After the last two years of poor results, linked to poorly modeled risks, the impact of climate change and high inflation, the agency is forecasting stricter underwriting conditions for 2024, with further rate increases in property damage classes of business.

These increases should, however, be more moderate than those reported in 2023. Finally, Fitch Ratings anticipates the market’s combined ratio to be set at 94% for 2023.

The 2024 renewal as perceived by reinsurers

Swiss Re and SCOR's 2024 forecasts are consistent with those expressed by main rating agencies.

Swiss Re

Swiss Re [13] is expecting solid growth in the non-life reinsurance market over the next 10 years. Stimulated by ongoing rate adjustments, this growth is likely to be in the order of 5% per annum, making it stronger than global GDP growth.

For 2024 and beyond, the Swiss reinsurer is counting on more balanced market pricing, after years of mixed performance impacted by above-average natural catastrophe business. This quasi-automatic adjustment of risk-related pricing should continue for future renewals.

SCOR

SCOR [14], too, expects renewals to be easier than in the past, which is particularly true for markets in Asia and the United States. In the other zones, the French reinsurer should continue to benefit from a market generating new business with attractive margins notwithstanding the ever-increasing hardships.

SCOR is already witnessing an improvement in its underwriting performance for the first nine months of 2023.