11th August 2019

S&P Global reviews reinsurance market trends

The magnitude of the 2018 natural catastrophes losses-about 50% higher than reinsurers would expect in an average year-helped push up prices at the 2019 April and June/July renewals. Property catastrophe rates increased by 15%-25% on loss-affected accounts. Reinsurers' very strong capital adequacy gives them a cushion against catastrophe risk exposure, despite the recent high insured losses, says S&P Global.
Most of the top-20 reinsurers chose to increase their exposure relative to capital, to benefit from the slightly improved conditions. A few stuck with defensive measures, allowing their exposure to contract further, as they had in 2018. On average, reinsurers' property-catastrophe risk appetite at a 1-in-250-year return period rose to 29% of shareholder equity, but some reinsurers saw reductions of more than five percentage points.
Meanwhile, alternative capital growth seems to have paused, at least temporarily. This did not materially shift reinsurer's retrocession strategies.
Although global reinsurers have maintained their underwriting discipline, the rating agency expects earnings volatility could be higher than historically observed, where exposure has increased. The sector remains resilient to extreme events, but they expect a larger industry loss would hit more reinsurers. If a 1-in-100-year event hits, causing losses well in excess of $200bn across the insurance industry, we expect only 12 of the 20 global reinsurers would maintain their current S&P Global Ratings capital adequacy level, as measured by their model.

S&P Global Trends(502 articles)