After a difficult period from 2017 to 2022, reinsurers have returned to comfortable profitability thresholds, in particular by withdrawing from certain risks classified as secondary.
The reinsurance sector is doing well: after several difficult years, reinsurers, who are meeting in Monaco for their “September Meetings”, have been able to re-establish more favorable pricing and contractual conditions with their insurance clients in 2023 and the trend seems to continue in 2024.
Reinsurers, such as Munich Re or Swiss Re, make it possible to spread the risks borne by insurers. For a fee, they undertake to take over from their insurance clients by taking on part of the risks, if they arise.
The players in this sector, a market valued at 364 billion euros in 2023, are meeting from Saturday to Wednesday in Monaco – as they do every year – where they begin annual negotiations with their insurance clients.
More flexibility on contractual and pricing conditions
“We have restored conditions for the reinsurance market to function well, in a sustainable manner”, by being firmer “on prices, on contractual conditions, on structures”, explained this week the president of the Association of Reinsurance Professionals in France (Apref), Benoît Hugonin.
Reinsurers experienced volatile and degraded equity returns between 2017 and 2022 due to a series of natural disasters, where so-called secondary perils, i.e. of medium intensity such as hail or forest fires, were increasingly present.
From 2023, reinsurance has responded by tightening its intervention thresholds and increasing its prices in its contracts updated each year, to restore its profitability. At the same time, reinsurers have withdrawn from secondary natural catastrophes to focus on primary catastrophes: earthquakes or hurricanes.
A rebalancing assumed by reinsurers but which has considerably reduced the margins of most insurance companies. They did not fail to highlight this in their 2023 results.
There is “no reason to think that there would be a change in approach for the 2025 renewals”, added Benoît Hugonin, for whom “when you are a reinsurer, you are not in the same place on the risk management chain”.
Pricing peak passed
In light of these developments, the rating agency S&P Global has maintained its “stable” outlook for the reinsurance sector. This sector “is doing well, we have a satisfactory level of profitability (…). We have earnings prospects that, from our point of view, remain favorable”, explains Marc-Philippe Juilliard, its insurance director, estimating that this trend will not be able to continue, however.
“During the last renewals in 2024, we are no longer seeing a general increase in reinsurance pricing, but rather segmented developments, including (…) reductions” in pricing concerning contracts which “have not been affected by significant claims in the recent period”, he adds.
For the rating agency Fitch Ratings, “profitability is expected to 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 positioned” to be able to lower prices, “even if claims costs continue to rise and catastrophe losses become more significant due to climate change.”
Natural disasters are not, however, the only challenge that the sector will have to face in the coming years. Reinsurers know that they will have to take into account the potentially exponential increase in cyber risk and they are wondering how to define and insure this new risk in their contracts. “This is an area where each disaster brings its share of new developments,” emphasizes Marc-Philippe Juilliard.
Furthermore, “the socio-political environment of recent years has led to major insurance losses linked to riots around the world,” says Benoît Hugonin, citing for example the Black Lives Matter movement in the United States or the yellow vests and the insurrection in New Caledonia in France.
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