As pricing for natural catastrophe business has been, for the most part, loss-making in recent years, even the strongest global reinsurers have now pulled back from the space via tightening terms and conditions (T&Cs) in an effort to move higher up the tower and away from aggregate covers, notes Fitch Ratings.
In recent analysis, Fitch discusses the trend of global reinsurance companies cutting their exposure to mid-sized nat cat risks on the back of investor pressure following consecutive heavy loss years and improved profitability in other parts of the market.
The result is that primary insurer are now much less protected against secondary perils. This was evident in the first half of they year as the severe convective storm peril dominated the insured nat cat load, with reports from the market revealing that primary players retained a greater share of the losses when compared with prior years.
“Tighter terms and conditions for natural catastrophe cover are a structural improvement that should benefit reinsurers’ risk profiles in the medium term as they are unlikely to be quickly reversed even when market conditions change,” says Fitch.
The fact that cedents retained more of the losses in the first half of the year, combined with above-claims-inflation price rises in many lines of business, helped the aggregate non-life reinsurer combined ratio strengthen to 88% from 89.4% a year earlier, for the 18 non-life carriers tracked by Fitch.
While sellers have moved away from frequency events, Fitch analysts state that reinsurers are still offering ample protection against the most severe events, such as hurricanes.
Supporting the non-life improvements in H1 2023, life reinsurance profits also improved, with Fitch pointing to a return to pre-pandemic levels as excess mortality claims dipped significantly.
As we wrote previously, in light of current market conditions, Fitch expects reinsurers to maintaining strong underwriting discipline despite higher interest rates and for reinsurance market hardening to persist into 2024.
