S&P Report Urges Discipline as Reinsurers Adjust Exposure to Cat Risk

Standard & Poor’s Ratings Services has released a report – “Discipline Is Necessary As Reinsurers Adjust Their Exposure To Catastrophe Risk” – that examines diverging attitudes to catastrophe risk among reinsurers facing a prolonged soft market.

S&P explained that “two years of low claims have contributed to the current record high levels of capital in the industry and thus to the recent downward trend in catastrophe risk pricing. Insured catastrophe losses in 2014 have been estimated at $35 billion, around half the 10-year average of $64 billion for the global reinsurance industry.”

S&P said its analysis of reinsurers’ catastrophe exposure “reveals a divergence in reinsurers’ strategic reaction to the softening markets. While most reinsurers have allowed their exposure relative to capital to contract, a few took on more exposure this year.

“In our view, an increased focus on catastrophe risk weakens a reinsurer’s risk position by increasing volatility in earnings and on the balance sheet. We consider underwriting profitability in the sector likely to become more vulnerable to natural catastrophes; therefore, we anticipate that operating performance could deteriorate at reinsurers that are more exposed.

Source: Standard & Poor’s Ratings Services