Reinsurance industry ‘better protected than ever’ for hurricane season: JP Morgan

The global reinsurance industry is better protected than ever against large hurricane losses, according to JP Morgan’s recent Love Actuary report.

According to analysts, a robust capital base, increased market capitalisations of the largest reinsurers, and improved profitability mean that an event the size of Hurricane Katrina would have a far less devastating impact on the sector than in the past.

A Hurricane Katrina type scenario would cost approximately $100bn, which was around 26% of industry capital back in 2005. In 2025 it would only be 14% of the industry’s significantly expanded capital base, demonstrating greater loss-absorption potential.

“We therefore see the industry being far better protected than it has been at any point in the last 20 years, with far greater loss absorbency than in the past,” JP Morgan stated.

Furthermore, the report noted that despite a major hurricane event, the industry would likely still maintain a positive return on equity (ROE) for the year. With average post-tax ROEs for European reinsurers estimated to be in the mid-teens for 2025- 26.

“Industry profitability has materially increased since 2022 and this is another factor that should mean the industry is better placed than ever to absorb even major hurricane claims. Combined ratios are at excellent levels and we estimate that these super-normal margins mean there is more room to absorb ‘bad luck’ from natural catastrophes than there has been for ~20 years,” analysts added.

The increased market capitalisation of major reinsurers is also expected to help companies absorb losses with less severe impact on share prices.

Using its break-in-case-of-emergency framework, JP Morgan analysts estimate a $50bn hurricane event would lead to share price reductions of 2.6-3.8% for the reinsurers and 2.2-7.2% for the Lloyd’s names.

JP Morgan concluded: “In reality, the financial impact would probably be even lower than our assumptions set out below, with the reinsurers and Lloyd’s names making explicit allowances within catastrophe budgets for hurricanes to occur.

“There is a lot of focus on hurricane season, but we believe that our framework clearly sets out that the impacts from even relatively large events should be manageable for the industry. We believe that investors should not be put off the space, even during hurricane season.”

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