Reinsurance rates peaking in short tail lines, says S&P
Rating agency retains stable sector outlook but urges reinsurers to maintain discipline
Pricing has remained largely in favour of reinsurers during major renewals this year but rates are likely to have “peaked” in property and property cat short-tail lines, said S&P Global Ratings as it held its stable outlook on the sector.
“Pricing in these lines is peaking in 2024, after years of rate increases and finally the structural changes of 2023, including stricter and more favourable terms and conditions and risk repricing,” said S&P Global Ratings credit analyst Taoufik Gharib.
“The pressure on rates is in part due to reinsurers’ broadly increased capacity, which benefited from strong results in 2023 and the subsequent increase in appetite,” S&P said.
It added that reinsurers are “seizing the opportunity to capitalise on favourable pricing, which will likely hold for the foreseeable future”.
S&P expects reinsurers to post strong results for the year and stressed that record high pricing pushed through last year “largely remained steady” at January and April renewals.
The ratings agency urged the sector to “maintain discipline to hold on to favourable fundamentals and keep ahead of plentiful risks” given concerns about casualty reserves and exposure to severe cat losses.
Casualty reinsurance prices continued to rise during 2024 renewals, S&P said, with concerns about adverse reserve developments in some long tail lines for the 2014-2019 accident years. “Ultimate loss trends are still materialising for these casualty lines, and we expect they will remain a key factor in future renewals as well,” it warned.
S&P has held its stable outlook on the reinsurance sector after it exceeded cost of capital in 2023 for the first time in the past four years and posted a return on equity of 14.4%. The sector’s 2024 performance rests on the outcome of the Atlantic hurricane season over the next three months, S&P said.
“Reinsurers can’t claim victory yet, but we expect the sector will earn its cost of capital in 2024-2025,” it said. S&P forecasts an average sector combined ratio of between 92% and 96% in 2024, and a return on equity in the low to mid-teens for 2024-2025.
By the end of August, S&P had assigned 74% of the top 19 global reinsurers with stable rating outlooks, 26% positive rating outlooks and no negative rating outlooks.
