Financial research and analytics firm Autonomous reports that the reinsurance industry is facing a persistently soft market, while solid profitability continues to impact renewals.
Reinsurers’ performance in the first month of the year was below expectations, with renewal results slightly weaker than expected, according to Autonomous.
However, Autonomous noted that a moderately positive earnings season, coupled with cautious investor sentiment, supported the sector. European reinsurers are essentially flat year to date, while Bermuda peers are up an average of 1.5%.
According to Autonomous’ assessment, reinsurers have outperformed broader industry indexes on both sides of the Atlantic, helped by low beta, limited leverage, strong capital and a generally benign loss environment in a challenging equity market.
Autonomous reports that European reinsurers have outperformed the industry by 3% year-to-date (unweighted), while U.S. and Bermuda reinsurers have outperformed the U.S. insurance index by 8%.
Autonomous’ analysis of April renewals suggests that the buyer-favoring market conditions observed in January persist. The company noted that real estate catastrophe rates have declined by mid-to-high percentages, sometimes even combining with previous year’s declines.
Autonomous stressed that despite these declines, the starting point following the post-2022 pricing reset remains higher and brokers do not view the rate changes as unjustified.
Competitive pressures, which are particularly evident at lower property tiers, may also reflect the continued growth of alternative capital markets, including insurance-related securities, Autonomous said.
The company observed that property and professional lines saw the most significant rate reductions, while casualty lines remained relatively stable. Autonomy also highlights ongoing uncertainty around aggregate and frequency protection, which affects how losses are transferred from primary insurers to reinsurers.
Autonomous noted that current pricing trends are largely underpinned by a benign loss environment, particularly natural disasters, and reinforced by strong capital buffers. While geopolitical risks such as conflict in the Middle East may create uncertainty, Autonomous reports that the impact of these factors on renewals has so far been limited, mostly limited to specialty exposures.
Looking ahead, Autonomous warned that double-digit interest rate declines suggest the era of extraordinary earnings may be starting to ease, although the company believes earnings potential remains sufficient to achieve mid-to-high teen returns on equity. Autonomous noted that the management team remains confident in achieving profitability targets and building additional buffers, and the April renewal does not materially change that view.
Autonomous emphasized that mid-year renewals, especially in the U.S. disaster focus area, are expected to be watched more closely. Early indications are that given lower hurricane activity in 2025 and limited impact in the continental U.S., rates may fall as seen in April.
The company observes that early signs of a decline in excess loss terms and conditions will be monitored, particularly as the U.S. has historically accounted for a large proportion of losses from severe convective storms, fires and wind events.
Autonomous concludes that the conditions needed to drive a meaningful positive shift in pricing remain distant. The company emphasized that ample capital and a continued benign loss environment support high profitability.
Autonomous identifies the most likely catalyst for rising rates as a major capacity-depletion event — whether a single catastrophic loss of more than $110-$125 billion, or an aggregation of extreme losses — that could dramatically change market dynamics.
Even so, Autonomous noted that such events would be consistent with the “new normal” for insured catastrophe losses, consistent with Verisk’s estimate of total annual losses over 20 years.