Global reinsurers are tightening terms and conditions on natural catastrophe (NatCat) coverage as they work to reduce exposure to secondary peril events. This shift comes in response to increasingly volatile weather-related losses driven by climate change, according to a report by Fitch Ratings.
The revised conditions are expected to enhance reinsurers’ long-term risk profiles and profitability, even as the market evolves. Reinsurers are likely to maintain this cautious approach, with no immediate return to more lenient terms, despite potential shifts in market dynamics.
While reinsurers continue to provide significant protection for large-scale catastrophes, primary insurers are now absorbing more risk from secondary peril events. The first half of 2024 saw natural catastrophe losses driven primarily by medium-sized events, such as convective storms across the U.S. However, measures taken by reinsurers to reduce exposure ensured that much of the financial burden from these events fell on primary insurers.
Higher attachment points—the thresholds at which reinsurance coverage kicks in—and reduced aggregate covers helped reinsurers avoid paying out on many claims. These adjustments limited the activation of reinsurance payments, leaving primary insurers to bear the brunt of medium-sized losses.
Despite the evolving risk-sharing model, the reinsurance sector has continued to perform strongly, buoyed by sharp increases in property catastrophe pricing over recent years. Although prices may ease slightly, reinsurers are expected to persist in setting strict limits on lower layers of NatCat protection and avoiding large aggregate covers. The industry’s cautious stance is further supported by limited new market capacity and the growing risks associated with climate change and rising property exposures.
In the first half of 2024, Fitch’s monitored group of 19 non-life reinsurers posted robust underwriting profitability, achieving a combined ratio of 84.2%. This represents an improvement from 85.9% in the same period of 2023. Natural catastrophe losses accounted for 5.9 percentage points of the 2024 combined ratio.
Leading European reinsurers—Hannover Re, Munich Re, SCOR, and Swiss Re—stood out for their particularly strong earnings. These companies reported an average combined ratio for property and casualty reinsurance of 84.2%, down from 86% the previous year. The improvement reflects the benefits of higher rates, stricter underwriting terms, and fewer large-scale losses.
As the impacts of climate change continue to influence the frequency and severity of natural disasters, the balance of risk between reinsurers and primary insurers is expected to remain a critical issue in the global insurance market.
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