Balancing stability, innovation and challenges – looking ahead to the 2025 reinsurance renewal season
The insurance sector enters 2025 with a renewed focus and capitalisation. FitchRatings predicts an ‘improving’ outlook while Guy Carpenter and AM Best have projected a 2024 growth in reinsurance capital of 9% in 2024, reaching US$ 620 billion. This expansion, driven by strong profitability levels in 2024, has created conditions for more competitive terms in certain business lines.
Aon also reports a largely positive picture as we approach year-end renewals, with abundant capacity leading to improved pricing and terms across wider swaths of the market. Markets such as cyber and D&O are looking particularly favourable for buyers, albeit with insurers beginning to focus on longer-term, sustainable pricing.
Aon’s view is borne out by several individual Lloyd’s syndicates announcing significant capacity increases for 2025: Chaucer Syndicate 1084 (11.1% increase to a £2billion plus capacity), QBE Syndicate 2999 (10% increase to £2.15 billion) and Dale Syndicate 1729 (35.7% increase to £475 million). In all likelihood, we will see an increase on the record 2024 £53 billion Lloyd’s stamp in 2025.
Zurich is seeing an overall rise in commercial insurance rates, but with substantial variations between risk and geography, and rates rising most in lines where carriers are still struggling to make money, such as US motor and liability.
As ever, additional capacity will seek out well-managed, profitable risks with areas such as US Casualty and Property Catastrophe being less attractive and subject to a tighter rating environment.
Persistent challenges remain for the market
While stabilising rates offer reasons for optimism, the market continues to face challenges. Inflationary pressures and geopolitical tensions are leading to uncertainty, which in turn is complicating risk assessments and pricing models.
Natural catastrophes remain a persistent threat. PWC estimates, for instance, that insured losses from storm Bert now sit at US$440 million, with Hurricane Milton likely to be between $25bn and $30bn. Reinsurance pricing trends continue to reflect broader market dynamics. For example, Swiss Re's sigma estimates global insured losses from natural catastrophes in 2023 reached $125 billion, marking the fourth consecutive year with over $100 billion in losses.
In 2025, this number is expected to be around $135 billion with the United States bearing the brunt of these losses, at around two-thirds of the total.
Against this backdrop, the market will be looking to balance the desire to compete for more attractive risks with the requirement to maintain financial resilience, whichis anticipated to lead to higher premiums for natural disaster coverage.
We are also seeing growth in Insurance-Linked Securities (ILS), with the ILS market growing beyond the $100 billion mark in 2024, a trend that reflects growing demand for alternative capital as traditional reinsurance capacity faces constraints following years of high nat cat losses.
Changing regulatory frameworks are also likely to impact reinsurance negotiations. Discussions around Solvency II reforms in Europe may lead to larger capital requirements and, therefore, higher premiums for sectors such as property catastrophe or liability. On the flip side, however, lower-risk sectors could see more competitive pricing if insurers adjust their risk appetite accordingly.
Another challenge is the growing captive trend across Europe and the desire of corporates to establish solutions for themselves. Examples include Enel S.p.A., the Italian multinational energy company forming a reinsurance captive, EnelReinsurance. And the French petroleum and chemical company Rubis Énergie, received approval in December 2023 for its reinsurance captive.
To combat this trend, the market must look to work collaboratively while continuing to promote the sector’s value through bespoke underwriting, technological innovations and offer exceptional levels of service.
Looking ahead
As the January 2025 renewals season unfolds, inflation, protectionism, climate and geopolitical risks remain some of the many challenges that will continue to impact the world as we move into 2025 and beyond. Will climate change manifest in ever-increasing insurable losses and how with the market react?
As with many industries, technology seems part of the answer with the market increasingly benefitting from the use of data analytics, artificial intelligence (AI), and machine learning to drive efficiencies and more granular pricing models. These changes are helping to save money, deliver service efficiencies and also allow underwriters to rate risks more easily and with greater precision.
Dani’s actuarial experience and passion are key. He is a strong advocate of innovation, optimism and communication, both within the team and for the clients. Dani’s ability and experience with data ensure that we always maximise value and efficiency for every project, enabling us to unlock hidden value for the clients business.
