Fitch Reports Positive Shift in Global Reinsurance Sector Outlook

Fitch Ratings has revised its global reinsurance sector outlook to "improving" from "neutral" to reflect its view that the sector's underlying financial performance will improve into 2024.

According to the rating agency, high price discipline driving a hard market environment, rising reinvestment yields, and strong demand for reinsurance protection are likely to support earnings. Furthermore, underwriting margins are likely to peak in 2024 as near-term price increases continue to exceed loss cost trends.

Fitch also expects the headwinds linked to the high inflation and rising interest rate environment to ease, while the negative effect of climate change on natural catastrophe claims should be adequately priced in 2023 and 2024. 

Furthermore, Fitch estimates that the sector's near-term return on capital will exceed its cost of capital, which we see at 8–10 percent. The rating agency said it expects the reinsurance sector to maintain very strong capital adequacy—a testament to prudent risk management and strong earnings generation.

However, Fitch believes that better underwriting margins will drive a higher level of capital repatriation over the next 18 months, assuming capital cannot be deployed in growing the business at attractive margins.

Finally, Fitch said, renewed interest from institutional investors on the back of better expected returns will lead to strong net inflows into alternative capital. More capacity from traditional and alternative sources should lead to a gradual softening of the market from 2025.