Healthy underwriting conditions and a turnaround in unrealised losses propelled reinsurers to a 22% return on equity (RoE) in 2023, according to AM Best.
The ratings agency said the RoE figure was the strongest it has been in five years, surpassing the cost of equity after several years of falling short.
For 2024, AM Best said a significant proportion of losses from hurricanes Helene and Milton were likely to be transferred to the global reinsurance market.
“However, stricter reinsurance terms and conditions, which led to higher attachment points, also should help make reinsurers’ losses manageable,” the report noted.
AM Best said further hardening of the reinsurance market is unlikely, but nat cat activity was likely to halt any potential softening.
Senior financial analyst Guilherme Monteiro Simoes said: “Fourth-quarter 2024 reinsurers’ results will be negatively affected, but full-year earnings should still be favourable.
“Further reinsurance-market hardening is unlikely, but Helene and Milton will probably stall any softening of the market cycle.”
AM Best said reserve leverage dropped, led by non-life reinsurers, other than the Big Four, where reserve leverage was “relatively stable”. This was offset by a significant increase in operating margins.
“Consequently, the composite’s ROE surpassed its cost of equity after the number of years of falling short, helped additionally by lower taxes and proportionally lower interest on debt,” the report said.