The current supply of reinsurance capacity could be reduced to 2013 levels of $300 billion after paying out 2017 catastrophe losses, according to J.P. Morgan analysts.
Analysts explained that if $140 billion reflects 2017 cat losses, and 50% of this is borne by the reinsurance/insurance-linked securities (ILS) market, then this figure could reduce by $70 billion as a result of the year’s losses.
Although, with fresh capital entering the market, and traditional reinsurers expected to see a year of close to zero earnings, instead of outright losses, the reduction to reinsurance capital could come to an expected $20-$40 billion.
J.P. analysts have adjusted the fiscal year earnings estimates across the reinsurance sector, as the combined impact of the events in Q3 are likely to exhaust annual catastrophe budgets: “We note that the remaining catastrophe budget across the sector varies quite significantly, due in part to the difference loss experience in the year-to-date (Swiss Re for example had a particularly large share of the Cyclone Debbie loss in Q1), and partly due to differing accounting treatment (Hannover Re saves its unused catastrophe budget until Q4, and hence carried forward a much larger proportion than its peers).”
Although reinsurance capacity levels could potentially reduce to 2013 levels, premiums have increased by around 5% since, which J.P. Morgan said “suggests that the supply/demand dynamic could be slightly tighter than that seen in 2013, when property cat rates were some 45% higher than where they are today.”
