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Reinsurers withdrawing from providing Nat CAT cover

Global reinsurers are cutting back on the covers they provide against medium-sized natural catastrophe risks due to investor pressure after several years of large catastrophe losses and improved profitability in other areas according to an analysis by Fitch Ratings.

A media release by the rating agency said some companies were already retreating from the property-casualty market in 2022 but even the strongest reinsurers have now pulled back, largely through tightening their terms and conditions to limit their aggregate covers and low layers of natural catastrophe protection. The primary insurers are hence, left much less protected against secondary peril events.

The analysis said the reinsurers, however, still offer ample cover against the most severe events. Tighter terms and conditions for Nat CAT cover are a structural improvement that should benefit reinsurers’ risk profiles in the medium term as they are unlikely to be quickly reversed even when market conditions change.

There were insured natural catastrophe costs of $53bn globally in the first half of 2023, which is 47% above the 20-year average, according to the broker Aon. Nevertheless, the 18 non-life reinsurers monitored by Fitch reported strong underwriting profitability in the first six months of 2023.

This was driven by the above-claims-inflation price increases in many business lines, as well as the lower natural catastrophe burden as cedents retained more of the losses themselves. The aggregate ratio included moderate losses of 6.7pp from natural catastrophes.

Meanwhile, profits in life reinsurance returned to pre-pandemic levels thanks to significantly lower excess mortality claims linked to the pandemic, and investment performance benefited significantly from a rebound in equity markets and higher reinvestment rates as interest rates stabilized at higher levels.

Fitch expects reinsurers to maintain strong underwriting discipline despite higher interest rates and for reinsurance market hardening to persist into 2024. However, price increases are likely to be more moderate than in 2023 as rate adequacy has generally been reached through several rounds of hardening since 2018.


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