Reinsurers to back more cat risk: S&P
Top global reinsurers are ready to take on more natural catastrophe risk as price increases over the past few years boost the potential for growth, according to S&P.
Many reinsurers were cautious about cat risk at the start of 2023, with more than half of the top 20 global players maintaining or reducing their exposure in January, according to the ratings agency. But S&P anticipates this could change for the rest of 2023 and into 2024.
“Despite the growing cost of natural catastrophes, and the apparent divide in strategy observed in recent years, 2023 and 2024 could be a turning point for visible earnings improvements in the space,” it said.
“We expect the top 20 global reinsurers to deploy more capital toward catastrophe risk in 2023 and 2024, because of continued strong demand from cedents,” said S&P Global Ratings credit analyst Charles-Marie Delpuech.
He added that higher retrocession costs could lead reinsurers to cede less of their risk, but that reinsurers’ strong capitalisation levels have built a buffer against exceptional shocks.
“For 2023, we expect the property catastrophe business to contribute about 2.5 percentage points to return on equity for the top 20 global reinsurers if losses remain within the annual budgets,” said Delpuech.
However, rival rating agency Fitch said global reinsurers are cutting back on cover for medium-sized nat cat risks, largely in response to investor pressure following large losses.
“Even the strongest reinsurers have now pulled back, largely through tightening their terms and conditions to limit their aggregate covers and low layers of natural catastrophe protection,” Fitch said. But there is still enough reinsurance cover against the most severe events.
“The reinsurance market appears to have returned to its pre-soft market state of providing capital protection for cedents, rather than earnings protection,” Fitch said.
Across the 18 non-life reinsurers tracked by Fitch, strong underwriting profits in the first half of 2023 recorded an average combined ratio of 88%. Fitch said it expects rate hardening to persist in 2024, although more moderately than this year.