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Reinsurer attitudes to cat risk have diverged: S&P

19th October 2021 - Author: Matt Sheehan

Analyst at S&P Global Ratings believe that reinsurers are likely to exhibit contrasting strategies to catastrophe risk going forward, as attitudes diverge and companies choose to seek either take on or reduce their level of risk.

rate-divergence“While some reinsurers are increasing their market shares, taking on increased catastrophe risk and leveraging their alternative capital vehicles, others are reducing their risk appetite for natural catastrophe, given the inherent volatility of this line of business,” S&P stated.

“We expect this divide will likely widen in the upcoming renewals in 2022,” it added.

The rating agency expects that property catastrophe pricing will rise at the 2022 renewals in reaction to the elevated losses this year, especially in the US and Europe, which should help to sustain some reinsurers’ appetite to expand exposure and deploy more capital.

2021 will likely be the fifth year in a row that natural catastrophe activity exceeds reinsurers’ average expectations.

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And while reinsurers can hope that losses will normalize at some point, for now they are seeing unrewarded earnings and balance sheet volatility, and it remains unclear how long they will accept this situation.

S&P continues to see retrocession as a vital de-risking tool in this environment, and although rate increases in the retrocession market were significant, reinsurers have maintained their use of retrocession and a few reinsurers ceded significantly more exposure in 2021.

“We expect further rate hardening and will monitor whether global reinsurers gradually start to cede less of their exposure in the future,” S&P commented. “So far, we see no sign that they will do so.”

About half of the Top 21 reinsurers increased their absolute net exposure to a 1-in-250-year aggregate loss by more than 10%.

Conversely, other reinsurers made defensive moves, choosing to reduce their exposure to extreme events by more than 15%.

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