Moody’s Ratings has maintained its stable outlook for the global reinsurance sector, citing strong balance sheets, improved reserve adequacy, robust profitability and continued underwriting discipline, even as pricing conditions soften across the market.
Moody’s recent report noted that reinsurers are entering the next phase of the market cycle from a position of strength.
Reinsurers’ robust balance sheets are a key factor supporting the stable outlook. The largest reinsurers have high solvency ratios, supported by three consecutive years of robust profits, strengthening the industry’s capacity to absorb unexpected losses.
Over the past two years, reinsurers have also improved the adequacy of their overall claims reserves, although further strengthening of US casualty reserves is likely.
Another central theme of the outlook is the continuation of falling reinsurance prices, particularly in the property catastrophe market. This reflects a decline in traditional reinsurers’ pricing power after three highly profitable years, alongside private capital-fuelled growth in the insurance-linked securities (ILS) market and the managing general agent (MGA) sector. The steady rise of regional reinsurers is another factor.
The report suggests profits will moderate from recent highs, at a variable pace. Weaker reinsurance pricing is expected to result in a modest deterioration in financial performance. However, combined profits will remain relatively strong in the absence of major catastrophe events, supported by solid investment returns and continued diversification, for example in specialty insurance.
Moody’s believes casualty reinsurance prices will also continue to rise in the US, although at a slower pace, reflecting persistent increases in casualty claims, which remain a key source of risk for the industry.
Despite growing exposure to natural catastrophe risk, reinsurers have maintained underwriting discipline. The industry tightened policy terms and conditions, notably by raising loss thresholds in treaty reinsurance contracts in 2023, and has largely avoided concessions in recent policy renewals. It therefore continues to report strong financial results despite high catastrophe claims.
Moody’s anticipates reinsurers to hold their position in upcoming renewals, likely prioritising coverage of major catastrophes rather than less severe but more frequent events.
The report also highlighted emerging risks facing the sector. Growing technology, climate and geopolitical risks are supporting demand for reinsurance coverage, but are also increasing accumulation risk, whereby a single event could generate losses across multiple insurance lines and policy types.
Moody’s said reinsurers have largely resisted pressure to loosen contract terms and continue to prioritise coverage for major catastrophe events while maintaining tighter attachment points introduced during the hard market. Moody’s said this underwriting discipline remains a key reason behind the stable outlook despite intensifying competition.
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