Reinsurers in good shape after several difficult years

Keystone-SDA

The Reinsurance sector was able to re-establish more favourable pricing and contractual conditions with their customers in 2023.

The reinsurance sector is doing well. After several difficult years, reinsurers meeting in Monaco for their annual “September Rendezvous”, had a favourable outlook.

This trend looks set to continue in 2024. Reinsurers, such as Munich Re and Swiss Re, help cushion the risks borne by insurers. In return for a fee, they undertake to take over from their insurance clients by assuming part of the damage, should it occur.

The players in this sector, a market valued in 2023 at 364 billion euros, are meeting from Saturday until Wednesday in Monaco – as they do every year – and will begin their annual negotiations with their insurance clients.

Reinsurers have experienced volatile returns on equity, degraded between 2017 and 2022 by a series of natural catastrophes, where so-called secondary perils, i.e. of moderate intensity such as hail or forest fires, have been increasingly present.

Price increases

From 2023 onwards, the reinsurance industry reacted by tightening its intervention thresholds and raising prices in its annually updated contracts, to restore profitability. At the same time, reinsurers withdrew from secondary natural catastrophes, concentrating instead on primary catastrophes such as earthquakes and hurricanes.

Reinsurers have accepted this rebalancing, but it has considerably eroded the margins of most insurance companies. This was emphasized at the company’s 2023 results.

Pricing peak passed

In light of these developments, the S&P Global rating agency has maintained its “stable” outlook for the reinsurance sector. This sector “is doing well, we have a satisfactory level of profitability (…). Our earnings outlook, from our point of view, remains favorable”, explains Marc-Philippe Juilliard, the company’s insurance director, who believes that this trend will not continue.

“During the last renewals in 2024, we will no longer see a general increase in reinsurance rates, but rather segmented trends, including (…) rate reductions” for contracts that “have not been affected by a significant loss experience in the recent period”, he adds.

For the rating agency Fitch Ratings, “profitability should remain very strong by historical standards in 2025”. In a report, it believes that “given the abundance of capital in the sector”, “reinsurers are well placed” to be able to lower prices, “even if claims costs continue to rise and catastrophe losses become more significant due to climate change”.

However, natural catastrophes are not the only challenge facing the sector in the years ahead. Reinsurers know that they will have to deal with the potentially exponential increase in cyberattack risk, and are considering how to define and insure this new risk in their contracts. “It’s an area where each claim brings its own set of novelties,” says Juilliard.

In addition, “the socio-political environment of recent years is leading to major insurance losses linked to riots around the world”, says Benoît Hugonin, president of the French Association of Reinsurers. He cited the Black lives matters movement in the United States or the yellow vests and insurrection in New Caledonia in France.

Adapted from French by DeepL/ac

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