Reinsurers have managed to avoid an influx of severe convective storm (SCS) losses following a reduction of their exposure to frequent secondary perils, according to S&P Global Ratings.
For the fourth consecutive time, insured losses due to global natural catastrophes (nat cats) topped US$100 billion. As per the report, this was driven by how frequently medium-severity perils occur, particularly thunderstorms in the United States, instead of less common major disasters.
For 1H 2024, Swiss Re Institute’s estimates say that small to medium nat cat events have caused global insurance losses to reach US$60bn, which is 62% higher than the 10-year average. According to Swiss Re’s report, 70% of that number are caused by SCS events in the US.
S&P analyst Taoufik Gharib noted, “In 2023 and the first half of 2024, insured losses from secondary perils, especially severe convective storms, surged to unprecedented levels.” He added, “Primary insurers bore the brunt of these losses, while reinsurers’ strategic positioning largely shielded them.”
Reinsurance companies brought down interest in lower layers of the cover, increased attachment points, and showed little appetite for aggregate protection covers in a reset. This came after pricing strategies and actions prior to 2023 proved insufficient in dealing with the surge in frequency and severity of natural calamities.
In the report, S&P mentioned that it had not taken negative rating actions on reinsurers because of the losses to natural disasters over the past 18 months. However, it said it took negative actions against a few US primary insurers when the company believed that the bigger losses impeded underwriting performance.
Gharib said: “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,” he continued.
The impact of losses due to natural catastrophes on the total operating ratios of 10 selected reinsurers fell to 4.1 percentage points in the past year, which is 5.5 percentage points less than the average of the previous four years. For five selected reinsurers, the decline was more noticeable at 6.2 percentage points.
Last year, SCS resulted in a record of insured losses at $US64 billion, which made up 60% of global insured losses from all natural disasters.
