Half of the world's top 20 reinsurers are more exposed to Nat CAT risk in 2018 than in 2017, says S&P Global Ratings in a report titled "Are Global Reinsurers Ready For Another Year Of Active Natural Catastrophes?"
Although the global reinsurance sector is entering the 2018 CAT season with robust capital and earnings, a repeat of 2017 Nat CAT losses would likely wash away full-year earnings and CAT budgets and further test reinsurers' capital resilience, says the report. In such a scenario, the picture might be quite different from what S&P has observed so far in 2018, since the international rating agency thinks price hikes would be likely after the events and more players could take more risk on balance sheet, leaving the sector more exposed. Negative rating actions could result for overexposed reinsurers, says S&P.
Insured Nat CAT losses hit a record high in 2017, at $138bn globally according to Swiss Re sigma. Three major hurricanes in the Caribbean Islands, Texas, and Florida resulted in $92bn of insured losses.
The top 20 global reinsurers picked up about 20% of the total insured industry losses, which S&P estimates at close to a 1-in-25-year aggregate loss for the peer group.
The loss magnitude, roughly 3x what reinsurers would expect in an average Nat CAT year, hurt the industry's earnings, and a few players' capital adequacy, but failed to materially push up global reinsurance prices. As a result, a number of reinsurers have taken defensive actions to reduce their exposure to catastrophe risk. Nevertheless, for players who decided to maintain or increase their exposure, S&P expects higher sensitivity of earnings and capital toward catastrophe risk.
The top 20 reinsurers in aggregate expect a catastrophe budget of about $11bn or 8% of the combined ratio for 2018. If not exceeded, this should enable the sector to report pretax profits of about $21bn in 2018, reflecting a consolidated buffer of about $32bn before capital would be hit in a severe nat cat stress scenario.
S&P's analysis highlights that the Bermuda property catastrophe specialists and London reinsurers are likely to be the least resilient as a result of their higher-than-average appetite for catastrophe risk
Despite some capital depletion, the sector remains resilient to extreme events. Albeit fewer than last year, 12 out of 20 global reinsurers are likely to maintain at least 'AA' capital adequacy following a 1-in-250-year event.
In the first half of 2018, worldwide nat cat losses were lower than in the same period of 2017. Insured catastrophe losses according to Munich Re's statistics declined to about $17bn from about $25.5bn in first-half 2017, but remained at the average of the last 30 years.
However, in general, the first quarter is not the most representative part of the year since the North Atlantic hurricane season starts 1 June and finishes 30 November.
The top 20 global reinsurers are:
Large global reinsurers
- Hannover Rueck SE
- Munich Reinsurance Co.
- SCOR SE
- Swiss Reinsurance Co. Ltd.
Midsize global reinsurers
- Everest Re Group Ltd.
- PartnerRe Ltd.
- Transatlantic Holdings Inc.
- XL Group Ltd.
- MS Amlin PLC
- Aspen Insurance Holdings Ltd.
- Hiscox Insurance Co. Ltd.
- Qatar Insurance Co. S.A.Q.
- Allied World Assurance Company Holdings GmbH
- Arch Capital Group Ltd.
- AXIS Capital Holdings Ltd.
- Sirius International Group Ltd.
- Lancashire Holdings Ltd.
- RenaissanceRe Holdings Ltd.
- Validus Holdings Ltd.