Global reinsurers demonstrate robust financial strength — and they need to

The reinsurers in BI’s global reinsurance list reflect a customized interpretation of S&P Global Ratings’ 2025 list of the Top 40 global reinsurers.

The group of reinsurers illustrates the very high degree of financial strength in the sector. The LCS rating scale mappings range from AA+ to A, with a mean of AA- and a median of A+.

With cedents often requiring a minimum rating of A-, this is partially a market-driven inevitability. But the average strength of the selected reinsurers is, nonetheless, striking.

For these reinsurers, it reflects the profound impact, within the major rating agency insurer methodologies, of their group level scale, and their associated spread of risk. Asset and liability diversification are central factors in consideration of current and prospective balance sheet strength, both quantitatively within capital models and in the more qualitative parts of the balance sheet analysis. Overall earnings diversity, and within that both geographic and line of business diversity, are a central part of current and prospective risk-adjusted performance analysis.

This financial strength seen across the reinsurers has a crucial context that may not always get the attention it deserves. There is about $500 billion of traditional capital in the property/casualty reinsurance industry, of which these companies represents a material part. This can sound like a considerable number, but it is tiny compared with the global primary insurance industry that reinsurers serve as the primary source of severity risk transfer. Moreover, a significant part of the $500 billion is not covering severity risk.

Thus, a huge underlying industry relies on a far smaller sibling to absorb a material part of its severe stress underwriting exposure.

Of course, some of these reinsurers also have very large primary businesses. Nonetheless, the role the reinsurance industry plays is only tenable because the sources of those severity underwriting losses are extremely diversified, allowing portfolio theory to operate effectively at the reinsurance underwriting and retrocessional level.

Which leads us back to the logic behind the importance of diversification in the rating agency methodologies.

However, the spread in the sources of underwriting exposure usually only results in a reduction in the positive correlation of the risk of loss. It does not often mean a negative correlation. The dotcom crash, 9/11 and the recognition of huge holes in casualty reserves were not positively correlated risks. But they all still happened at the start of the 2000s and several high-profile reinsurers disappeared or were on life support as a result.

Happily, modern enterprise risk management in leading reinsurers is generally way more developed than at the start of the century. The rating agencies’ positive assessment of reinsurer ERM effectiveness, along with their capital strength and degree of diversification, is a key factor in the very high average ratings across the reinsurers.

And the financial strength resilience that this implies is crucial. A rerun of 2000-2003 is not impossible. None of PFAS, cyber or San Andreas is negatively correlated, nor are many other potentially huge sources of reinsurance industry loss.

Stuart Shipperlee is head of analysis at Litmus Analysis in London. He can be contacted at [email protected].

Background to the table and its contents

Business Insurance and insurance rating specialists Litmus Analysis have teamed up to provide readers with a unique perspective on the ratings of insurers and reinsurers that matter to them, as selected by BI. We will periodically cover insurers in North America, Bermuda and Europe, and global reinsurers.

The foundation is the Litmus Composite Score, which is Litmus’ proprietary method for creating an average rating from those published by the major rating agencies.

For clarity, it should be stressed that the LCS outcomes and their associated rating scale mappings are not the expression of Litmus’ own opinion of any named group or insurer. Litmus is not a rating agency and does not provide its own rating opinions.

Insurers and reinsurers within the same rated groups may be assigned different rating levels, and ratings can and do change. To check the latest ratings from any agency, visit its public ratings website.

For more details on why an averaged rating outcome may be helpful, the rating relationship between groups and their insurer ratings and the LCS calculation methodology, including tie-break situations and how different agency rating scales are interpreted and combined, visit www.litmusanalysis.com/litmus-composite-score or contact Litmus at [email protected]