Global reinsurers to continue seizing opportunity of hard property cat market: S&P

The large global reinsurance companies are expected to continue seizing the opportunity in property catastrophe risks while the market’s pricing remains hard, S&P believes.

The majority of the top reinsurers increased their natural catastrophe exposure during 2023 and there is evidence from results so far in 2024 that this trend has continued.

S&P Global Ratings said, “Favorable reinsurance pricing and improving net investment income in 2023 and 2024 have presented reinsurers with opportunities to deploy capital and expand their property catastrophe business.”

“We expect global reinsurers to seize the opportunity to deploy more capital over the next two years, within strict limits,” S&P added.

The S&P analysts further explain that reinsurance companies have been buoyed by the strong results of 2023.

“Significant pricing increases, particularly in 2023, combined with reinsurers’ lower loss experience in 2023, made property catastrophe business a major contributor to the industry’s overall strong results and encouraged reinsurers to increase their exposure,” they explained.

Reinsurers have been “encouraged by the recent pricing corrections and higher attachment points” which has meant that “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,” S&P said.

S&P sees reinsurers as “optimistic but cautious” when it comes to deploying additional capital to property catastrophe risks.

They are cautious on pricing and terms, but how cautious remains to be seen at the January 2025 renewal season.

S&P said, “We anticipate that they will continue to be restrictive on their exposure to higher frequency and midsize events and reduce quota share and aggregate cover offerings.

“In response to high inflation and rising costs, attachment points will remain high.”

“While demand from cedents for natural catastrophe cover remains high, we expect reinsurers to remain optimistic regarding pricing conditions. While rates are favorable, the strong returns expected in 2024 could encourage reinsurers to continue deploying capital and expanding their property catastrophe portfolios,” they further explained.

Adding that, “However, if pricing weakens, reinsurers’ appetite for increasing their natural catastrophe exposure could quickly wane. For example, benign conditions in the second half of 2024 could increase pressure on reinsurers to alter terms and conditions or lower rates. We anticipate that this would prompt them to hold back and maintain a disciplined approach.”