For the fifth consecutive year, insured losses from natural catastrophes are expected to be at or above global reinsurers’ budget expectations, but their very strong capital adequacy continues to provide a cushion, according to S&P Global Ratings.
“The top 21 global reinsurers saw exceptional insured losses from COVID-19 of about $20 billion in 2020,” said S&P credit analyst Charles-Marie Delpuech, in a statement. “In addition, insured losses from natural catastrophes were at or above reinsurers’ budget expectations for the fourth year in a row in 2020 [and] 2021 is shaping up to exceed expectations again.”
Despite those pressures, half of the top 21 global reinsurers rated by S&P chose to maintain or increase their natural property-catastrophe exposure relative to their capital in 2021, said Delpuech, noting that these reinsurers are benefiting from firmer pricing conditions in the property catastrophe space. “The other half [of the top 21] stuck with defensive measures, contracting their exposure further, as they had in 2020.”
Broadly Flat Risk Appetite
On average, reinsurers’ property-catastrophe risk appetite at a 1-in-250-year return period was broadly flat, at 27% of shareholder equity, but some reinsurers saw reductions of around 5 percentage points, S&P continued. Although global reinsurers have maintained their underwriting discipline, S&P said, it expects “earnings volatility could be higher than historically observed where exposure has increased.”
The sector continues to be resilient to extreme events because of its robust capital, the report said. If a never-seen 1-in-100-year event hits, causing losses in excess of $250 billion across the entire insurance industry, S&P said, it expects 13 of the top 21 global reinsurers “would maintain a buffer at their current capital adequacy level….”
“Alternative capital is likely to remain a reliable and vital avenue to retrocede peak perils,” but the loss experience of the past few years has increased the cost of cover, S&P indicated. “So far, reinsurers’ retrocession strategies have not materially shifted, but they could retain more risks if prices continue to harden.”
S&P’s report is titled “Five Years of Over-Budget Catastrophe Losses Test Global Reinsurers’ Discipline.”
Source: S&P Global Ratings
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