At the Monte Carlo Rendez-Vous de Septembre on 8 September, Berenberg, the German investment bank and equity research firm, reported that large, diversified reinsurers are in a stronger position to navigate the current softening market than their less diversified peers.
This resilience is reinforced by the sector’s overall strong capitalisation. Berenberg noted that excess capacity in the global reinsurance market rose from 6% at the end of 2023 to 11% by December 2024.
This partially reflected S&P’s revised capital model, which explicitly rewards diversification and allows global reinsurers to allocate capital more efficiently. While incremental capacity still exceeds incremental demand, most of the additional capacity comes from established players rather than new entrants.
Despite the broader trend of softening prices, Berenberg found that terms and conditions, particularly attachment points, remain relatively firm, and overall pricing continues to be risk-adequate.
Retrocession costs are declining, property and property catastrophe coverage is still fairly priced, and the sector’s strong capital base underpins both pricing levels and credit ratings.
Two factors help maintain this discipline: reinsurers are still strengthening casualty reserves rather than releasing excess, and alternative capital remains disciplined, in part due to elevated interest rates.
Most segments of the market are still priced appropriately for the risks assumed, although lines such as directors and officers (D&O) insurance may be underpriced. US casualty insurance has seen meaningful rate increases, reflecting substantial uncertainty margins, while California property pricing has risen due to wildfire losses.
S&P maintains a stable outlook for the sector, citing strong capitalisation, robust investment income, and risk-adequate pricing, which together deliver returns above the sector’s cost of capital.
Attachment points are generally holding up, with European primary insurers willing to raise them due to surplus capital, while US insurers remain more cautious.
Smaller, less diversified primary insurers have made modest concessions, but overall discipline is intact. Berenberg sees potential recovery in D&O and cyber insurance by 2027, while excess-of-loss property catastrophe coverage remains attractive, and proportional property catastrophe insurance continues to soften.
Berenberg also highlighted the growing role of managing general agents (MGAs), which now account for roughly 10% of the US property and casualty market. MGAs have been especially active in the excess and surplus segment, which has grown at around 20% per year since 2019. S&P flagged reliance on MGAs as a potential risk factor, noting misaligned incentives with capacity providers.
Overall, Berenberg concludes that diversified reinsurers, supported by strong capitalisation and disciplined alternative capital, are well-positioned to navigate the current market environment. Current ratings reflect this perspective, with Munich Re rated Hold, Swiss Re Buy, and Conduit Re Buy.
About the Author
