Global reinsurers are adopting stringent terms and conditions to mitigate exposure to secondary peril events, as climate change intensifies the volatility and significance of weather-related losses, according to Fitch Ratings. This shift in the reinsurance climate is expected to enhance reinsurers’ risk profiles and profitability in the long term, with no immediate reversal anticipated even if market conditions change.
As primary insurers retain more risk associated with secondary peril events, reinsurers continue to provide substantial coverage for the most catastrophic incidents. Notably, natural catastrophe losses in the first half of 2024 were primarily attributed to medium-sized events, such as convective storms in the United States.
The reinsurance sector’s proactive measures to limit exposure meant that these losses largely fell to primary insurers, with higher attachment points and reduced aggregate covers curbing the activation of reinsurance payments.
Despite moderate expectations for price easing, reinsurers are likely to uphold stringent limits on lower layers of natural catastrophe protection, steering clear of large aggregate covers while maintaining rigorous underwriting discipline. This cautious strategy is underscored by limited new market capacity and rising risks from climate change and expanding property exposures.
Fitch’s analysis of 19 monitored non-life reinsurers reveals robust underwriting profitability in the first half of 2024, with a combined ratio of 84.2%, an improvement from 85.9% during the same period in 2023. Natural catastrophe losses accounted for 5.9 percentage points of this ratio.
Leading European reinsurers, including Hannover Re, Munich Re, SCOR, and Swiss Re, reported particularly strong earnings, with an average combined ratio for property and casualty reinsurance improving to 84.2%, down from 86% the previous year. This progress reflects the benefits of increased rates, stricter terms, and a decrease in large losses.
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