Reinsurers post 22% ROE in 2023, Helene & Milton to stall softening, says AM Best

Solid underwriting conditions, combined with a turnaround in unrealised losses drove reinsurers to a 22% return on equity (ROE) in 2023, states global ratings agency AM Best.

However, the agency has also said that higher attachment points would make 2024 hurricane claims manageable.

A new report from the agency notes that AM Best’s composite of reinsurers’ gross premiums written (GPW) represented almost 90% of total reinsurance industry GPW in 2022 and includes companies reporting using U.S. GAAP and IFRS 17 standards.

According to AM Best, reserve leverage for the composite dropped, led by non-life reinsurers, other than the Big Four, which have life as a significant line of business and whose reserve leverage was relatively stable.

Importantly, according to various estimates from numerous organisations across the sector, hurricanes Milton and Helene in aggregate have the potential for incurred insured losses of $25 billion to $50 billion, a significant proportion of which is likely to be transferred to the global reinsurance market.

However, AM Best highlighted that stricter reinsurance terms and conditions, which led to higher attachment points, are expected to help make reinsurers’ losses manageable.

Guilherme Monteiro Simoes, senior financial analyst, AM Best, commented: “Fourth-quarter 2024 reinsurers’ results will be negatively affected, but full-year earnings should still be favorable. Further reinsurance market hardening is unlikely, but Helene and Milton will probably stall any softening of the market cycle.”

It’s worth noting that AM Best considers the impact of the two hurricanes to be more of an earnings event rather than a capital event.

Given the nature of the investment allocations over time and risk profiles, as well as the fact that companies’ actions to earn higher interest rates generally have a limited impact on investment income, AM Best continues to see underwriting profitability as the essential in the composite’s operating performance assessments and analysis.

As well as this, the agency also expects ROEs to continue to exceed the cost of capital over the medium term, as new capital seeks enterprises with established track records or with the liquidity of the insurance-linked securities (ILS) market, which provides investors quicker entry and exit points within the reinsurance sector.

This website states: The content on this site is sourced from the internet. If there is any infringement, please contact us and we will handle it promptly.