Bloomberg Intelligence highlights gap in reinsurers’ midyear renewals and catastrophe losses

Reinsurance companies Munich Re and Swiss Re may benefit from higher reinsurance-policy retention, but a recent report from Bloomberg Intelligence (BI), the research division of Bloomberg L.P., suggests that current pricing does not fully account for the risks tied to rising sea temperatures during this hurricane season.

BI notes that midyear renewal rates declined due to an abundance of available capital, with market forces still influencing pricing, even as another substantial year for catastrophe claims appears likely.

Munich Re reports that natural catastrophe claims in the first half of the year reached $62 billion.

This indicates that 2024 could again see claims from severe storms and earthquakes surpass $100 billion. This figure is well above the 10-year average of $37 billion.

Total economic costs were $120 billion, lower than the first half of 2023, largely due to the devastating earthquakes in Turkey and Syria that year.

The most expensive event in the first half of 2024 was Japan’s 7.5 magnitude New Year’s Day earthquake, causing $10 billion in damages, with $2 billion covered by insurance.

Charles Graham, Senior Industry Analyst, Bloomberg Intelligence, commented: “After record returns for reinsurers in 2023 – buoyed by a benign hurricane season -capacity returned during the midyear renewals, characterised by a sufficient supply of capital to meet rising demand.”

He continued: “Risk-adjusted catastrophe placements were generally flat to down 10%, according to Gallagher Re. Reinsurers were more willing to adjust premiums rather than program structures. Flood losses in the UAE, southern Germany and Brazil in 2Q reinforced the companies’ determination to maintain retention levels.

“That’s in contrast to last year’s renewals, when property-catastrophe rates in the US increased 10-20% on loss-free programmes, and 20-40% on those programs that had been loss-affected. Rates rose by as much as 20% in Latin America and China, 25% in Australia and up to 40% in South Africa.”

After significant price surges in 2022 and 2023, property-catastrophe reinsurance rates in the June 1 Florida renewals saw an average risk-adjusted decline of 5% compared to the previous year, according to Howden Re, as reported by Bloomberg Intelligence (BI).

Rate reductions generally ranged from 2.5% to 7.5%. Additionally, the increased demand for $3 to $5 billion in capacity limits in Florida was fully met.

Graham further added: “Increased demand for reinsurance capacity has been met by record levels of reinsurer capital. Aon estimates that global reinsurer capital was $25 billion higher in Q1 at a new high of $695 billion. That was driven by retained earnings, recovering asset values and new inflows into the catastrophe-bond market.

“The shareholders equity reported by global reinsurers is estimated to have increased by $23 billion to $585 billion in the first three months of the year, thanks to robust underwriting results and improved investment yields.”

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