While higher volumes, stronger investment income and diversification are helping offset the impact of softening prices, analysts at Berenberg believe another key driver of rising reported profits is reinsurers’ allocation of part of their strong underwriting results from the historically high pricing of 2023–24 into buffer reserves, which could slow or stop by 2027 and support continued profit growth.
“According to the reinsurers, the reasons for this include higher volumes, growth in invested assets leading to more investment income and increasing diversification,” Berenberg explained.
However, the firm’s analysts have suggested that another key factor is that, in the past two years, reinsurers have been allocating part of their high underwriting results, which are linked to the historically high levels of pricing achieved in 2023 and 2024, to buffer reserves, rather than reporting the full strength of their underlying earnings.
“Going forward, we believe that the additions that the insurers are making to buffer reserves will gradually slow and likely stop completely, at the latest in 2027, and we think that this will allow reported profits to continue to rise,” Berenberg’s analysts said.
They continued, “All of the reinsurers that we met with stressed the importance of creating and adding to reserve buffers in order to help maintain resilient earnings, particularly since investors and rating agencies value low earnings volatility.
“While the reinsurers are at different stages in their process of adding to buffers, we think that the positive surprise in the H1 2025 results is that, thanks to benign loss experience, they were able to add more to their reserves in H1 2025, which is partly reflected by positive experience variances in their contractual service margin (CSM) reserve.
“We believe that the process of adding to buffers will likely slow as prices soften and underlying earnings growth slows, with buffer building likely to end by 2027, in our view.”
Berenberg’s analysts also noted that attachment points remained a central topic at RVS, adding that negotiations between reinsurers and their clients often involve a degree of compromise on both sides.
“In the current environment, many reinsurers that we met with noted that in those discussions attachment points were a central concern,” the analysts said.
They concluded, “While reinsurers appear to be willing to negotiate on pricing to some extent (with an implied agreement for increased exposure across lines of business), attachment points appear to be non-negotiable, in our view.
“This arguably reflects that discipline is largely being sustained in the sector and partly reflects the fact that there is a natural erosion of the attachment points from general inflation.”
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