S&P still negative on reinsurance sector, rates continue to climb – International – Insurance News


S&P Global Ratings says its view of the reinsurance industry remains negative amid the impacts of natural disasters, market volatility and inflation, although it expects damage profitability to improve.

Reinsurers will continue to struggle to sustainably earn above their cost of capital due to potential increases in natural catastrophe losses, capital market impacts and high inflation, says a report titled The Industry. world of reinsurance about to take a turn.

“On the bright side, reinsurance pricing is improving with hopes that it will continue through 2023 renewals, and new underwriting opportunities could be the lifeline needed for the industry to get back on its feet and start afresh. to earn its cost of capital,” says S&P.

At the end of last month, S&P reports that 19% of the ratings of the 21 major global reinsurers it assesses were on CreditWatch with negative implications or had a negative outlook, 76% were assigned a stable outlook and 5% were on CreditWatch positive.

Reinsurers’ strategies towards natural catastrophe risk diverged, with half of the top 21 increasing their net exposure and some existing outright, and the rest adopting a more cautious and defensive stance.

At the same time, demand for property and casualty catastrophic insurance is growing, which will help support rate increases next year.

“As we are still in the middle of the Atlantic hurricane season, which typically shapes performance for the year, outsized catastrophic events during the season could challenge the strategy of reinsurers who have maintained or increased their exposure to natural disasters,” S&P said.

Broker Gallagher Re, in a semi-annual industry report, says reinsurers together achieved premium growth of 14% over the period, supported by pricing changes.

Investment losses drove reported return on equity (ROE) down to 0.4%, while underlying ROE rose to 7.5% in the first half from 6.3% a year earlier . This is the best performance since 2014, but still below the industry’s weighted average cost of capital, says Gallagher Re.

Total capital dedicated to the global reinsurance industry fell 11% in the six-month period to US$647 billion ($945 billion), primarily due to book value investment losses Steps.

“Investment losses hurt what was otherwise a more positive first half for reinsurers, and the sharp overall capital decline overestimates the impact on economic capital positions,” said Gallagher Re’s CEO, James Kent.

“But the figures nonetheless show the need for continued vigilance given today’s macroeconomic and geopolitical uncertainties and the ongoing debate over natural disaster exposures.”

Marsh McLennan reinsurance broker Guy Carpenter told a recent virtual press conference that insurers and reinsurers are both strategic in the business they undertake and carefully assess risk.

“Demand for reinsurance is expected to remain strong as risk awareness and the desire for downside protection are pervasive across the industry in this uncertain environment,” Chairman David Priebe said.

“Overall, this is one of the toughest and most complex markets seen in years and January 1 will likely follow the wide range of renewal results seen mid-year.”


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