Fitch Ratings, a provider of credit ratings, research, and risk analysis, expects to see a further expansion of alternative reinsurance capacity in 2025, supported by cyber catastrophe bond issuances, which will add to the reinsurance sector’s capital base and help absorb earnings volatility.
Looking back at 2024, three cyber cat bonds were introduced to the insurance-linked securities (ILS) market.If we also include the seven that were issued in 2023, this means that we have seen 10 cyber cat bonds since they were first introduced to the market in early 2023.
As a reminder, you can view our Deal Directory, where you can analyse details of almost every cat bond ever issued and filter the list by peril to show only cyber cat bonds.
At the same time, the rating agency also noted that alternative reinsurance capacity has recently grown, primarily due to it benefiting from the favourable pricing environment for property catastrophe risks.
Moreover, reinsurance capital has grown more than 20% since its low point in 2022. Fitch attributes this increase towards improved earnings and higher asset values.
Elsewhere, Fitch has also forecasted that global reinsurers’ profitability will remain strong in 2025, despite lower risk-adjusted prices for most business lines during the January 1st reinsurance renewals.
It’s important to highlight that these price reductions are attributed towards an abundance of capital in the market, and the reinsurance cycle passing its peak.
Fitch also asserts that market conditions will continue to support strong risk-adjusted returns for reinsurers.
Moreover, the agency states that reinsurers are entering 2025 in a strong position, largely thanks to capitalisation buffers and solid reserve adequacy bolstered by the record profits of the past two years.
This has also reportedly been supported by an influx of capital from traditional reinsurers and institutional investors, attracted by the sector’s strong underwriting returns.
“We believe reinsurers’ increasing risk appetite and desire for growth was also a factor in the price reductions. However, the reductions were not accompanied by any notable easing in contract terms and conditions, with reinsurers maintaining most of the improvements in programme structures that they achieved in recent years. Despite the rate reductions, we expect the sector’s premium income to increase in 2025, driven by higher volumes,” Fitch said.
Furthermore, by the end of September this year, the amount of alternative capital within the reinsurance sector had increased by 5% over the nine-months of 2024, to reach another new high of $113 billion, helped by retained earnings and catastrophe bond market inflows, according to broker Aon.
It also appears that the ongoing growth trend with alternative capital will continue throughout 2025, given the high returns for ILS relative to other assets, according to Thad Hall, Partner and Head of ILS Solutions at Augment Risk, who recently spoke to Artemis.
