Reinsurers have reason to laugh at the moment. Despite increasing geopolitical tensions, the growing risks of climate change and, most recently, devastating losses from natural disasters, the big three – Munich Re, Swiss Re and Hannover Re – are making a fortune. However, the capital markets are increasingly asking whether the favourable situation in the sector will continue, or whether it will come to an end in the foreseeable future.

The two key indicators that can provide an answer to this question are interest rates and the general price cycle in the reinsurance segment. The reinsurer's Munich peak phase began when the decade of low interest rates was coming to an end, and inflationary pressure was increasing. The Ukraine war that broke out in 2022 caused energy costs to go through the roof. Insurers generally cope better with external price shocks that fuel inflation than with deflation.

The world's major central banks were forced to combat rising inflation by increasing key interest rates in order to ensure price stability in the long term. The Fed and ECB have long since ended this trend. After a phase of interest rate cuts, the markets are adjusting to more stable key interest rates.

Higher market interest rates ensure higher earnings and returns on investments in the insurance industry. The boom on the stock markets is providing an additional tailwind. The major companies are benefiting from this. Munich Re is one example of this trend. The world's largest reinsurer generated an investment result of 7.2 billion euros in 2024. The running yield on the portfolio was 3.5%. In comparison: In 2018, the Group achieved an investment result of 6.5 billion euros. The return at that time was 2.8%.

In view of the general interest rate trend, it can be concluded that reinsurers' income from investments is likely to remain robust. In contrast, the price cycle in the industry presents a more mixed picture. For some years now, the industry has been in a phase of rising rates for policies covering natural catastrophe losses. This is referred to as a „hard“ market. Prices are being driven by growing demand, which at the beginning of the current cycle came up against temporarily limited capacity on the supply side. The result was a rise in prices, in some cases across a broad front.

The price momentum has slowed recently, although the rates for cover against damage from forest fires, heavy rain and storms continue to rise. In the latter case, the course of the annual hurricane season determines the development of insurance rates. Given climate change, the need for cover against natural catastrophe losses remains relatively high. Following the heavy losses in 2024 due to tropical hurricanes in Florida and the wildfires in Los Angeles in January, the subsequent regular treaty renewal rounds are likely to bring reinsurers good deals again.

However, competition on the supply side is constantly increasing. With it the industry's capacity. According to reinsurance consultant Guy Carpenter, global reinsurer capital totalled over half a trillion dollars in 2024. Rapid growth over the past decade is putting pressure on prices. Bait offers are doing the rounds. The market leader has also recently felt the effects of increasing competition over rates. In the negotiation round at the turn of the year 2024/25, Munich Re recorded a slight price decline across all segments for the first time in eight years.

This is not yet an alarm signal for the established insurers. However, the result of the price negotiations makes it clear that this is having an impact on earnings momentum. In 2025, Munich Re expects a significantly lower profit growth of around 6%. The reinsurers' golden decade is beginning to show cracks.