S&P Revises Global Reinsurance Sector Outlook to Stable from Negative

S&P Global Ratings has revised its view of the global reinsurance sector to stable from negative. The rating agency had held a negative view of the reinsurance sector since May 2020.

S&P said it changed its view of the global reinsurance sector to stable because it expected the sector to earn its cost of capital in 2023–2024. That expectation is based on favorable property-casualty reinsurance pricing conditions, pre-pandemic earning levels in life reinsurance, and increasing net investment income, S&P said.

The rating agency noted that 2023 renewals saw reinsurers achieving needed structural changes in reinsurance underwriting, including tighter terms and conditions and repricing of risk. The result was the hardest market in decades in short-tail lines, with pricing power shifting back to reinsurers.

"Although we expect recent structural changes to provide a long-lasting tailwind, challenges such as elevated natural disasters, increasing cost of capital, financial market volatility, and inflation risk persist," S&P said.

S&P said that as of August 28, 90 percent of the top 20 global reinsurers had stable rating outlooks, 5 percent were assigned positive rating outlooks, and 5 percent were assigned negative rating outlooks.

Underwriting results for the global reinsurance sector are beginning to improve, S&P said. The combined ratio of the top 20 global reinsurers was 96.0 percent in 2022, better than the 5-year average of 99.7 percent. That positive trend continued into the first half of this year, according to the rating agency, with reinsurers' combined ratios ranging from the mid-80s to the low 90s.

S&P said it expects pricing favorable to reinsurers and hard market conditions in short-tail lines to prevail, and, absent any outsized catastrophe losses, that the industry will post a combined ratio of 92 percent to 96 percent, including a catastrophe load of 8 to 10 percentage points, with a return on equity of 9 percent to 12 percent in 2023–2024.