By Rebecca Delaney
April 11 - (The Insurer) - S&P Global Ratings has maintained its stable view of the global reinsurance sector, as players are expected to see a "limited hit" from tariff-related declines in global equity markets owing to conservative investment portfolios.
Analysis by S&P published on Friday found that hypothetical equity portfolio declines of 15%, 25% and even 35% were significant but manageable. Under these three scenarios, the sector saw projected net hits of around $4.7 billion, $7.8 billion and $11.0 billion, respectively.
Across all three scenarios, sector capitalization retained its redundancy at the 99.99% confidence level, with unrealized investment losses on equities absorbable by the $21.5 billion capital buffer.
The sector's largest asset allocation remains concentrated in high-quality fixed income securities (71%). S&P noted that while potential interest rate fluctuations can lead to temporary unrealised gains or losses on these securities, most unrealised losses are expected to unwind over time (as seen following the spike in interest rates in 2022).
"This reflects the robust financial and liquidity profiles of the top-19 reinsurers, the relatively short durations of their fixed-income portfolios, and prudent matching of cash inflows and outflows," said the report.
"These factors collectively enable the sector to hold such investments to maturity, mitigating the impact of market volatility."
However, S&P added that the reinsurance sector may face exposure to equity market losses in the short term and potential asset impairments in the medium term, as well as longer term challenges from the potential effects on illiquid holdings, such as real estate, and private debt and equity.
In addition, claims costs may also be influenced by the announced tariffs.
This serves as a reminder that the sector remains under various stress scenarios, as equity market volatility follows "an already bumpy start to the year" with the California wildfires.
With estimated insured losses of up to $50 billion, reinsurers are expected to absorb a substantial portion of these costs within their annual earnings, although this will reduce the cat budget available for the remainder of the year.
Nevertheless, S&P acknowledged significant improvements seen in the sector's operating performance in recent years, having exceeded cost of capital in 2023 and 2024.
"Based on these improvements, the reinsurance sector entered 2025 with a robust capital position, bolstered by excellent underwriting performance in short-tail lines, solid net investment income, and recovering fixed-income asset values over the past two years," said S&P credit analyst Taoufik Gharib.
"In turn, we think global reinsurers are well positioned to manage the elevated natural catastrophe losses seen in Q1 2025, alongside the recent financial market volatility, and so maintain our stable view of the sector."
