Reinsurance News

Reinsurer earnings hit by interest rates & hurricane activity: DBRS Morningstar

5th October 2022 - Author: Kane Wells

Despite lower combined ratios, global reinsurers’ overall profitability declined significantly in H1 of 2022, primarily reflecting higher interest rates that adversely affected equity and bond valuations, and the mounting pressure of the ongoing Atlantic hurricane season, says DBRS Morningstar.

According to the report, global reinsurers performed significantly worse compared with the same period in the prior year despite strong underwriting performance.

The reinsurers measured reported a substantial decline of 72.2% in cumulative net income to $2.1bn for H1 of 2022 from $7.6bn for H1 of 2021.

Global P&C reinsurers reported strong underwriting profitability for H1 of 2022, benefiting from consistent premium rate increases and lower insured natural catastrophe losses.

However, the report observes that underwriting results for the remainder of the year could be affected by large catastrophe losses, such as those arising from the still-active hurricane season.

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Hurricane Ian made landfall on Wednesday the 28th of October as a major Category 4 storm with maximum sustained winds of around 155 mph near the Cayo Costa area, bringing widespread flooding, property damage, and power outages.

The report states that initial estimates place Hurricane Ian’s insured losses in the $25 billion–$50 billion range, with analysts at KBW having estimated that insurance and reinsurance industry losses from Hurricane Ian will be in the “low $30 billion range.”

Although significant, DBRS Morningstar suggests that it still believes losses “will be manageable for the global reinsurance industry given very high solvency levels.”

Hurricane Fiona is also likely to cause record, but manageable insured losses in Newfoundland and Labrador, New Brunswick, Nova Scotia, and Prince Edward Island.

According to Swiss Re, estimated global insured catastrophe losses stood at $38bn for H1 2022, compared with an estimated $49bn for H1 2021, though still higher than the 10 year average.

Despite the ongoing headwinds, DBRS Morningstar’s outlook for the P&C reinsurance market remains stable, with renewal rates still trending upward.

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