Reinsurers have reduced capacity available to cover some catastrophe risks, according to reports issued Thursday by two rating agencies.
According to a report by A.M. Best Co. Inc., last year reinsurance capital declined to $411 billion, down 13.5% from the prior year. Much of the decline was due to mark-to-market – or paper – investment losses, the Oldwick, New Jersey-based rating agency said.
While estimated reinsurance capital has bounced back this year to about $461 billion, reinsurers are showing reduced appetite to deploy capital in property catastrophe reinsurance and are instead using it in their insurance operations.
“From 2017 to 2021, the top 50 reinsurers had a 51% weighted average of net premium written allocated toward reinsurance lines, which dropped to 46.7% in 2022. There is no clear indication when, or if, this trend will reverse and capital will be redeployed in reinsurance lines,” the report said.
Meanwhile, a report by Fitch Ratings Inc. said global reinsurers are reducing capacity for medium-sized natural catastrophe risks due to pressure from investors after several years of large catastrophe losses.
“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 report said.
There remains ample capacity for severe catastrophe risks, the report said.
