JP Morgan expects the reinsurance market to stabilise heading into 2025

A new note from JP Morgan on the European reinsurance market following RVS 2024, says that with the industry now producing strong returns, analysts are expecting that 2025 will lead to a stabilisation of the reinsurance market.

Analysts noted that they heard a relatively consistent message on pricing from market participants, ranging from the largest global reinsurers to reinsurance brokers and capital providers.

The financial giant added that the reset seen by the market in 2023 onwards has clearly helped propel the industry to far “stronger levels of profitability than recent history.”

In spite of this backdrop, JP Morgan stated that did not hear strong messages from brokers that pricing needed to reduce materially for the reinsurers, or that terms and conditions needed to soften.

…”And we believe that this stance relates to an industry-wide stance of discipline and the desire not to repeat the mistakes of the soft market that were evident in the last cycle,” noted JP Morgan.

Based on numerous discussions that the firm had, JP Morgan explained that it came away with the conclusion that US property catastrophe pricing will come under more pressure than European business given relatively benign loss experience for the reinsurers in this market since 2022.

As for Europe, the region witnessed a more mixed loss experience with severe weather seen in parts of Europe throughout 2023/24.

“We assume that property catastrophe reinsurance prices in 2025 will reduce mid single digits at the January renewals, with US rates outweighing any strength in the loss affected pockets of business in Europe seen in 2024,” the firm added.

In the financial giant’s view on reinsurance pricing at the upcoming January 2025 renewals, the industry is likely to see some mild softening in the market off the peaks seen in 2024.

“We expect these reductions to be small scale, in the mid-single digit range for property cat lines but this would be the first market reduction seen since 2017. While margins are still likely to be far higher than they were pre-2023, market cycles naturally soften at points after periods of excess profitability, with the reinsurance market still relatively fragmented,” JP Morgan said.

Moreover, JP Morgan also explained that it adopted a positive stance on the reinsurance sub-sector in mid 2022 when it became clear that the cycle would turn significantly.

In fact, since H1’22, European reinsurers have notably outperformed the wider sector, as well as seen their share prices increase by average ~65% over the past 2 years vs the SXIP at 40%.

“Since 2018, the reinsurance market has been on the up. Prices have increased for the January renewals for the last 6 years, an unprecedented length of time for prices to go up. In our experience, reinsurance prices have typically only increased for one or two years following a sharp correction in the market following a large event or series of events. This time around was different, with a relatively shallow hardening from 2018-22 before seeing a far faster increase in pricing from January 2023 onwards,” JP Morgan explained.

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