A new report from AM Best indicates that top global reinsurers are on track to meet their cost of capital in 2025, unless the sector experiences an additional US$16 billion in net reinsurance losses before the end of the year.
The analysis, which reviews a composite of leading global reinsurers, shows that return on equity (ROE) remained above the cost of capital at the end of 2024, despite being lower than the previous year.
The decline in ROE is attributed to the effects of IFRS 17 accounting standards and higher taxes. AM Best’s DuPont analysis for 2024 reveals a shift from the prior year, with underwriting income leading the contribution to surplus growth, followed by investment income. These factors combined to keep ROEs above the cost of equity capital.
Reserve leverage for the composite decreased in 2024 compared to 2023, driven by the Big Four European reinsurers’ adoption of IFRS 17. Most of these reinsurers implemented the standard in 2023, with one adopting it in 2024.
This transition contributed to the lower ROE in 2024. The report uses a five-stage DuPont ROE formula to break down the sources of the composite’s ROE, highlighting that reserve leverage, the main source of return, declined but was partially offset by strong operating income.
According to Gallagher Re, the underlying ROE for a group of 16 reinsurers declined to 12.6% at mid-year 2025, compared to 15.2% the previous year. However, the headline ROE remained at 17.7%, still above the average cost of capital.
Gallagher Re attributes the decrease in underlying ROE to factors outside of property and casualty reinsurance underwriting or investment income, and notes that both headline and underlying ROE continue to exceed the industry’s cost of capital by 1.5 to 2 times.
The Big Four European reinsurers – Munich Re, Swiss Re, Hannover Re, and SCOR – achieved a record average ROE of 21.1% in the first half of 2025, despite elevated catastrophe losses. This performance highlights the sector’s resilience, with underwriting results remaining solid and capital adequacy well above target ranges.
The adoption of IFRS 17, particularly by Swiss Re in 2024 and Munich Re, resulted in a significant reduction in reserve leverage due to improved operating results and increased retained earnings.
Higher pricing, tighter terms and conditions, and a shift away from risk exposure contributed to growth in retained premiums, while reserves increased at a slower pace. Net premiums written rose 5.7% in 2024 from 2023, while gross reserves increased only 0.5%.
The tax component weighed on ROE in 2024, as the benefit from lower taxes in 2023 was not repeated. The creation of deferred tax asset accounts in reinsurer balance sheets with Bermuda operations in 2023 led to higher effective tax rates in 2024. Bermudian reinsurers began offsetting some income taxes using these accounts, but the benefit was less than the initial creation of the deferred accounts, resulting in a higher overall tax rate.
Morningstar DBRS reports that global property and casualty reinsurers posted a combined net income of US$12 billion for the first half of 2025, slightly below the US$12.5 billion recorded in the same period last year.
The average combined ratio for the group rose to 87.6% from 83.7% in H1 2024, reflecting the impact of significant natural catastrophe losses, particularly from California wildfires and severe thunderstorms in the United States.
The cost of equity capital remained steady at 9.5% in 2024, and global reinsurers continued to record ROEs above this threshold.
“Based on 2024 results for this global reinsurers group, and using the current marginal tax rate and interest rate, it would take additional reinsurance net losses of around USD 16 billion beyond the California wildfires for the composite’s ROE to equal the cost of capital of 9.5%,” said Guilherme Simoes (pictured above), senior financial analyst at AM Best.
Simoes added that, assuming catastrophe losses similar to 2024, it is unlikely ROEs will fall to the cost of equity capital by the end of 2025.
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