Pricing to buoy global reinsurers for rest of 2024

The prevailing pricing environment in the global P&C reinsurance industry, together with disciplined underwriting and strong reinvestment yields, is behind Morningstar DBRS’s positive outlook for the sector.

“The favourable pricing and investment environment will likely continue to benefit the global reinsurers for the rest of the 2024,” says Steve Liu, assistant vice-president, global insurance & pension ratings. “However, natural catastrophe losses present a potential headwind for global reinsurers for the rest of 2024, especially as the hurricane season is predicted to be severe, which we believe will add some earning pressures on the industry in H2 2024.”

Morningstar DBRS said global P&C reinsurers reported strong earnings with solid premium and investment income growth. Most of the selected global top P&C reinsurance companies, which include Munich Re, Swiss Re, Hannover Re, Scor, Everest Re, Partner Re, Axis Capital, Arch Capital and Renaissance Re, reported significant net income growth in H1 2024 compared with the prior year.

The solid top-line growth was driven by favourable pricing environment, notably in property and specialty businesses, said Morningstar DBRS, adding that while H1 2024 is ranked as one of the costliest half years for natural catastrophe losses in the past ten years, the selected reinsurers maintained high profitability with disciplined underwriting.

The total aggregated net income increased to $12.9bn for H1 2024 from $10.3bn for H1 2023, representing a 25% year-over-year increase. The selected Bermuda-domiciled reinsurers continue to make strong contributions to the aggregated net income despite slightly slowed growth from both underwriting and investment performance. In addition, while SCOR reported a loss for H1 2024 due to an assumption review of its life & health reinsurance business, its P&C reinsurance business reported sound growth.

According to Morningstar DBRS, “while the selected reinsurers experienced low natural catastrophe losses in Q1 2024, the frequent mid-sized natural catastrophe events in Q2 2024 resulted in modestly higher, albeit still low, average combined ratio for the group relative to H1 2023. Judging by the historical trend and the expectation of an active Atlantic hurricane season, we believe that natural catastrophe losses will trend higher in H2 2024.”

The ratings agency said the property and specialty businesses remain particularly attractive to reinsurers because of strong market demand and higher pricing power, especially for natural catastrophe risks. In the meantime, some casualty lines have been relatively less attractive because of social inflation, leading to selective underwriting and reserve strengthening from Swiss Re and PartnerRe in Q2 2024.