Reinsurers are hoping the profitability party will last as reinsurance pricing and structural changes to tighten terms and conditions have increased returns to above the cost of capital for the first time in a decade.

Executive Summary

Fitch Ratings is projecting reinsurer returns on equity of 14 percent in 2023 and 2024, results that reflect a reinsurance environment that has effectively returned to the pre-soft market state of providing capital protection rather than earnings protection for primary insurers. Here, Senior Director Brian Schneider reviews conditions in the current hard market, which Fitch expects to persist into 2024.

As with previous market cycles, however, all good things must come to an end as better underwriting returns will eventually attract more capital and lead to a softening of the market. But for now, the reinsurance market is enjoying the rewards.

Fitch Ratings recently revised its global reinsurance outlook to “improving” from “neutral” to reflect the sector’s underlying financial performance improvement. High price discipline driving a hard market environment, rising reinvestment yields and strong demand for reinsurance protection are likely to support earnings.

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