Fitch sees stability in reinsurance market, updates sector outlook to neutral

Fitch Ratings has updated its outlook for the global reinsurance sector to neutral for 2024, with expectations that trends and key credit drivers for the sector would ‘remain broadly stable’ for the next 12 months.

Speaking to an audience at RVS 2024 in Monte Carlo this morning (8 September 2024) Manuel Arrive, insurance credit analyst at the ratings firm, explained: “The sector is in very good shape with very strong capitalisation and financial performance by historical standards.

“We expect both balance sheets and profitability to remain resilient in 2025, but further improvements in fundamentals from this point are less likely.”

In selecting a neutral rating for the sector’s outlook, Arrive (pictured) added that Fitch believed the cycle had “most likely” passed its peak, even though market conditions would remain “broadly favourable”.

Fitch explained that while the market had seen persistent underwriting discipline, “comfortable” reserve adequacy and capital buffers and a diversified revenue growth, prices had moderately declined from highs and claims costs were rising.

The agency also noted the negative impacts of climate change and rising catastrophe losses, as well as the impact of social inflation in US casualty lines.

Rating performance

When looking at individual reinsurers across the past year, Fitch director Graham Coutts noted that most ratings across the market were good, with no downgrades in 2024.

He also noted that, for the first half of 2024 (H1 2024), non-life reinsurers had posted better underwriting profitability on average, with a year-on-year improvement to a combined operating ratio (COR) of 84.2% – down from 85.9%.

Only one of the non-life reinsurers that Fitch tracked posted a COR above 100% - and this firm, IRB-Brasil, had dealt with major flooding in its home market, while still trending towards improvement.

Coutts explained: “The improvements were quite modest in H1 2024 but I would say that, across the board, the results remain very strong.

“Looking at the premium side of things, they rose by 6% across the market – most companies reported some growth here and that was across most lines of business.”

Fitch Forecast

In its forecast for H2 2024 and 2025, Coutts said that Fitch believed “premium growth was likely to continue, but likely only in mid-single digit levels”.

He added: “We do think rate adequacy has been reached, but we do expect underwriting discipline to continue.

“We also expect CORs to remain strong, although perhaps marginally decline.”