Reinsurers must maintain underwriting discipline to mitigate nat cat losses: S&P

Last year marked the fourth consecutive year in which global insured natural catastrophe losses exceeded $100 billion, however, reinsurers largely avoided significant impacts due to strategic positioning, according to S&P Global Ratings.

In 2023 and the first half of 2024, insured losses from secondary perils—particularly severe convective storms (SCS)—reached unprecedented levels. Primary insurers bore the majority of these losses, while reinsurers had limited exposure.

Since SCS events are generally less intense than major perils like hurricanes, the natural catastrophe losses in 2023 did not meet the thresholds required to trigger reinsurance policies.

Throughout last year, reinsurers worked to tighten terms and conditions and lift attachment points to move away from frequency events and aggregate structures on the back of elevated losses. All of this meant that primary insurers have been retaining more of these losses, with reinsurers looking to provide cover mainly for large events, such as hurricanes.

As a result of these changes, global reinsurers experienced robust overall performance in 2023 and the first half of 2024, and with discipline being maintained, a trend expected to persist into 2025 and beyond, strong earnings are predicted for the full year.

S&P also noted that it has not taken any negative rating actions against reinsurers due to natural catastrophe losses over the past 18 months. However, the agency stressed the importance of reinsurers maintaining underwriting discipline amid high demand for natural catastrophe reinsurance.

S&P reiterated, “While the demand for natural catastrophe reinsurance protection remains robust, it will be crucial to observe how long reinsurers can maintain their underwriting discipline. The risk of yielding to competitive pressures, as witnessed in the past, will be a critical factor influencing reinsurers’ future underwriting profitability.”

This emphasis on discipline is especially significant as insured losses from natural catastrophes continue to rise. The Swiss Re Institute projects that these losses will grow by 5% to 7% annually, consistent with the actual loss increases observed over the past three decades.

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