During yesterday’s S&P Global Ratings Insurance In Focus webinar, Ali Karakuyu, Director and Lead Analyst, stated that if a large tail, 1-in-200 year catastrophe event were to occur, the global reinsurance sector is well-prepared and would be able to manage it effectively.
Responding to a question on the sector’s preparedness for a large tail event, Karakuyu reminded the audience that with the newest S&P capital model, the rating agency has taken the opportunity to look into even higher return periods, up to 1-in-500 and so on.
Karakuyu explained, “If such an event were to occur, I think in general, the sector is well prepared and it will be contained.
“The reason that we say that is because on an annual basis, we run various stress tests on an aggregate level for the global reinsurance sector. You need to think about where the capital is. In general, these groups are well capitalised, 99.95 confidence interval, or even 99.99, which are quite severe stress scenarios or extreme, even more correctly.”
He continued, addressing potential impacts: “So, what needs to happen? The profits need to be depleted. The cat budgets need to be depleted. If such an event were to occur, yes, it may eat a little into the capital, and it may put a little bit of pressure. But remember, the sector generally behaves well. Obviously, taking into account commercial pressures, they tend to try and take advantage of areas that are hit, the nat cat, and apply pricing increases.”
Karakuyu acknowledged that the impact would vary among companies, with some more affected than others. However, he emphasised that companies would be evaluated on their ability to recover over the next two to three years and whether they would capitalise on any dislocation and push through rate rises to recoup their losses.
“In general, where we stand, we’ve had the global reinsurance sector with a stable outlook since 2023, and it remains so. We think that the sector can handle such an event,” Karakuyu concluded.
