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Some of the world’s largest reinsurance companies boosted profitability this year after they reduced coverage to limit their risk from catastrophic events such as flooding and increased prices for their policies.
The annual return on equity, a key measure of profitability for reinsurers, rose 2 percentage points to 18 per cent this year, reinsurance broker Guy Carpenter said. The expected growth for 2025 compares with a gain of 22 per cent in 2023. Reinsurers sell insurance to insurance companies.
The latest returns extend a run of bumper profits that started in 2023 as many reinsurers cut back on the cover they offer against costly perils such as flooding and demanded higher premiums, which are ultimately passed on to customers including governments, businesses and homeowners.
Insurance companies and governments buy reinsurance to offload some of their exposure to risks including hurricanes, cyber attacks and war. The policies enable groups with exposure to one region — such as to Florida’s increasingly intense hurricanes — to manage their financial risk.
Guy Carpenter, a unit of insurance broker Marsh, expects the reinsurance industry to post bumper profits until the end of 2027 at least, despite the toll of natural catastrophes such as January’s wildfires in California, which caused about $40bn in insured losses.
Profitability is set to remain resilient even as increasing bets on reinsurance by hedge funds such as Elliott Management and private capital groups including Blackstone have pushed down the price of reinsurance, to the detriment of traditional providers.
Private investors have also pushed into reinsurance by investing in so-called catastrophe bonds — which transfer the risk of disasters to bondholders — whose sales hit a record this year as insurers sought to offload the growing risk from climate change.
A year with more than $100bn in insured losses was once rare but has become routine for the insurance industry in recent years as inflation, urban sprawl and climate change have pushed up the cost and severity of natural disasters.
The price of property reinsurance deals for 2026, when policies are renewed, fell about 12 per cent, according to Guy Carpenter. But the 2023 price rises had given the sector a large enough buffer for investors to expect “strong profitability” over the next few years, said David Duffy, president of global clients at Guy Carpenter.
Insurers and reinsurers have sought to develop new markets for their products, such as artificial intelligence, where they hope to sell more cover for data centres and the energy infrastructure needed to power computing.
Aon, the world’s largest reinsurance broker, said that the construction of data centres could generate insurance premiums of more than $100bn to the end of the decade.
