Hard market could be ending but picture is nuanced: Fitch

The reinsurance market could see the first signs of softening in the January renewal as the market get more competitive—but it is a complex picture with many competing forces. 

That was the message at the Fitch Ratings briefing on the first day of the 2024 Monte Carlo Rendez-Vous.

Manuel Arrivé, director at Fitch Ratings, said the market was being affected by conflicting influences. From the credit-positive perspective, as the rating agency sees it, there has been persistent underwriting discipline, reinsurers have comfortable capital buffers, good reserve adequacy, supportive investment income and steady diversified revenue growth.  

“Global reinsurance capital is at a record level: just under $700 billion at 1H24.”

There are credit-neutral influences at play, which include supply versus demand dynamics, subdued economic growth and the interest rate environment.

There are also a number of credit-negative factors. These include some prices that are moderately declining, rising claims costs, losses from climate change and other catastrophes and social inflation/US casualty losses.

Fitch said that while the picture is mixed, it had seen signs of softening in the April/July 2024 renewals. It noted both increases and decreases in US casualty XL loss-free rates, US property loss-free rates and property-loss free treaties in India. There were more decreases than increases in Japan property-cat loss-free. However, there were increases in Japan casualty XL loss-free business, with rates rising by between 10 and 30 percent.

According to Fitch, global reinsurance capital is at a record level: just under $700 billion at the first half of 2024. This figure comprises $585 billion in traditional capital and $110 billion in alternative capital—the latter figure being at its highest level yet. The equivalent figures in 2023 were $562 billion and $108 billion, respectively.

Market volatility

Fitch said that catastrophe bonds are growing in importance, with the outstanding volume steadily increasing over the past decade, from $18.7 billion outstanding and $7.1 billion issued in 2013, to $40.8 billion and $11.2 billion, respectively, in 2023.

Martina Seydoux, senior analyst, insurance at CreditSights, a subsidiary of Fitch, added that credit spreads of European reinsurers have been slightly wider than those of European banks since January 2020, but have been tighter than those of European insurers in general. “There is not much juice left to squeeze from them, from a financial perspective,” Seydoux said.

She added that reinsurers’ spreads had been driven by Hurricane Ian in 2022, as well as market volatility caused by the “mini-budget” produced by the short-lived Liz Truss government of the same year in the UK.

Fitch expects catastrophe losses to keep increasing in the near future and combined ratios to rise slightly.

For more news from the Rendez-Vous de Septembre (RVS) click here.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.