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Global Reinsurers Reducing Catastrophe Coverage – Fitch Report

Fitch Ratings has reported that global reinsurers are reducing their coverage for medium-sized natural catastrophe risks. This change is driven by investor pressure following years of significant catastrophe losses and improved profitability in other sectors. Even the strongest reinsurers are cutting back, tightening terms and conditions to limit exposure. This leaves primary insurers with less protection against secondary peril events.

However, reinsurers still provide substantial coverage for severe events. This shift signifies a return to a pre-soft market state, focusing on capital protection over earnings protection. Unprofitability in the natural catastrophe business due to inadequate pricing in the face of climate change-induced losses has led to reinsurers’ reduced willingness to offer such coverage. Tighter terms and conditions are seen as a positive long-term change.

Aon states that global insured natural catastrophe costs for H1 2023 reached $53 billion, 47% above the 20-year average. Despite this, 18 non-life reinsurers reported strong underwriting profitability with a combined ratio of 88%. This was driven by price increases in various lines and reduced burden from natural catastrophes.

Life reinsurance profits have rebounded due to fewer excess mortality claims related to the pandemic. Investments performed well due to equity market rebounds and higher reinvestment rates. Reinsurance pricing showed continued momentum in renewals for June and July 2023, with significant increases in property-catastrophe markets and stable rates for casualty lines. Fitch expects strong underwriting discipline to persist, with a hardened reinsurance market likely until 2024, albeit with more moderate price increases compared to 2023.

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