Reinsurers’ midyear renewals not reflective of current risks, says BI

Higher reinsurance policy retention may provide some protection for reinsurers like Munich Re and Swiss Re, but reduced pricing does not fully account for the risks posed by elevated sea temperatures during the current hurricane season, according to a recent report from Bloomberg Intelligence (BI).

The report highlights that while midyear renewal rates declined due to record available capital, pricing continues to be influenced by supply and demand dynamics, even as the industry faces the potential for another record year of catastrophe claims.

The insured cost of natural catastrophe claims reached $62 billion in the first half of the year, according to Munich Re, as cited by BI. This suggests that 2024 could be another year where claims from extreme weather events and earthquakes exceed $100 billion. These losses are significantly higher than the 10-year average of $37 billion.

Total economic costs were reported at $120 billion, which is lower than the first half of 2023 due to the significant impact of the earthquakes in Turkey and Syria last year. The most costly event in the first half of this year was the 7.5-magnitude earthquake in Japan on New Year’s Day, which caused $10 billion in damages, with approximately $2 billion of that insured.

BI senior industry analyst for insurance Charles Graham noted that after record returns for reinsurers in 2023, driven by a mild hurricane season, capital returned during the midyear renewals.

This period was marked by an ample supply of capital to meet increasing demand. Gallagher Re observed that risk-adjusted catastrophe placements were generally flat to down 10%, with reinsurers more inclined to adjust premiums rather than restructure programs. Flood losses in the UAE, southern Germany, and Brazil in the second quarter underscored the companies’ commitment to maintaining retention levels.

This contrasts with the previous year’s renewals, where property-catastrophe rates in the U.S. rose by 10-20% on loss-free programs and by 20-40% on those affected by losses. Rates also increased by up to 20% in Latin America and China, 25% in Australia, and as much as 40% in South Africa.

Following significant price hikes in 2022 and 2023, the June 1 Florida renewals saw a decrease in average risk-adjusted property-catastrophe reinsurance rates by 5% compared to the prior year, according to Howden Re, as noted by BI. The reductions typically ranged between 2.5-7.5%. The demand for an additional $3-$5 billion in capacity limits in Florida was fully met.

Graham further added that the increased demand for reinsurance capacity has been matched by record levels of reinsurer capital. Aon estimates that global reinsurer capital increased by $25 billion in the first quarter, reaching a new high of $695 billion.

This growth was driven by retained earnings, recovering asset values, and new inflows into the catastrophe bond market. The shareholders’ equity reported by global reinsurers is estimated to have risen by $23 billion to $585 billion in the first three months of the year, supported by strong underwriting results and improved investment yields.

What are your thoughts on this story? Please feel free to share your comments below.