Global reinsurers’ show increasing appetite for nat cat risks, says S&P

S&P Global Ratings reports that global reinsurers are increasingly interested in natural catastrophe risks, driven by recent pricing corrections and higher attachment points, and are anticipated to deploy more capital in this market over the next two years.

Improved underwriting margins, strong investment returns, and solid capitalisation are expected to further enhance reinsurers’ resilience against major shocks.

Sachin Bhojani, a Credit Analyst at S&P Global Ratings, noted, “Rising demand, improved pricing, and more favourable terms and conditions boosted reinsurers’ appetite for property catastrophe risk during 2023. Most of the top 19 global reinsurers took on more exposure.”

For 2024, global natural catastrophe insured losses are tracking above the historical average, totaling $62 billion in the first six months. However, S&P expects primary insurers to absorb a significant portion of these losses.

S&P forecasts that property catastrophe business will contribute about 3 percentage points to return on equity (ROE), on average, across the group if natural catastrophe losses stay within budget.

To accommodate increasing losses, catastrophe budgets are rising. In 2024, the combined budget for natural catastrophe losses among S&P’s sample group of global reinsurers is approximately $19.2 billion, up from $17.1 billion in 2023 and $15.5 billion in 2022. This budget suggests an industry-wide insured loss of about $95 billion for the year, consistent with the historical 10-year average.

S&P observes that resilience among its sample group of reinsurers is improving, indicating that their capital adequacy is likely to withstand significant industry loss events.

At the individual reinsurer level, most are expected to remain resilient and experience an earnings event instead of a capital event in a severe scenario. Based on their average share of market losses over the past five years, another year of pretax profits is likely to strengthen their already substantial buffers against significant industry losses.

S&P concluded, “Overall, the increase in risk exposure among the top players is substantial, with an absolute rise in exposure of approximately 14%. As a result, average capital at risk has increased modestly.

“At the same time, few players have chosen to either reduce their exposure to natural catastrophe risk or maintain it at the previous level. Some of these reinsurers are guided by long-term strategies that focus on diversifying business lines and reducing volatility in underwriting performance.”

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