Fitch, S&P and Moody’s have all issued outlooks for the reinsurance sector in the past week with the three rating agencies identifying US casualty as an area of the market it would be closely monitoring.
Despite the global reinsurance industry earning its cost of capital for the first time in four years during 2023 - and is expected to repeat this in 2024-2025 - S&P held its outlook for the market at stable.
S&P said casualty remains a “key risk” to monitor closely, with analysts at the ratings agency telling journalists that “a very serious discussion” took place about whether to move the reinsurance sector to a positive outlook.
Director and lead analyst Ali Karakuyu said that an upgrade was ultimately avoided because of the uncertainty around casualty lines.
“Reflecting the pricing environment, we had a very serious discussion about whether it should be positive or not, but we landed on stable,” Karakuyu said.
“The reason for that is casualty, the uncertainty about what might happen on the casualty lines.”
Elsewhere, Moody’s highlighted concerns around casualty reserving despite an uptick in pricing.
“While casualty prices are rising, the improvement has been counterbalanced by higher claims, leaving profitability largely flat,” the ratings agency said.
However, the rating agency said concerns over casualty were outweighed by a combination of favourable risk/return dynamics, higher prices and tighter policy terms. Moody’s upgraded its outlook for the global reinsurance industry from stable to positive.
Rounding off the recent trio ratings agency outlooks, Fitch also cited unease around adverse casualty loss development trends in informing its sector outlook.
Fitch pointed to a higher proportion of claims with attorney involvement and more frequent nuclear verdicts as weighing on future loss tends.
Fitch revised the global reinsurance sector outlook to ‘neutral’ from ‘improving’ with its outlook reflecting its expectations for the sector’s very strong profitability by historical standards to remain resilient in 2025.
Outside of casualty, the ratings agencies flagged headwinds including elevated nat cat losses, economic inflation, financial market volatility and a relatively high cost of capital and retrocession.
All three forecast a slowing pace of property cat rate increases in 2025.
AM Best posted its outlook in June revising it to positive from stable. At the time it claimed concerns about adverse development of US casualty books seemed to be limited to particular years.