GRH 2022 captures the key issues facing the reinsurance industry, prior to the sector's annual industry event in Monte Carlo.
After more than two years of virtual conferences, in September 2022 the reinsurance industry meets in person in Monte Carlo to discuss upcoming renewals and trends in the sector. The long list of topics under discussion includes further hardening of reinsurance rates; rising inflation; geopolitical uncertainties including the Russia-Ukraine conflict; COVID-19; climate change; rising natural catastrophe losses; and reinsurers' diverging strategies toward natural catastrophe business.
In our lead article Is The Global Reinsurance Sector About To Turn A Corner? we discuss why we continue to have a negative view on the global reinsurance sector, despite some supportive tailwinds. We outline the main challenges, such as a slowing global economy, rising inflation, investment volatility, elevated natural catastrophes, and climate change. At the same time, given the sector's strengths--including capital adequacy, hardening rates, and improving underlying performance--we examine a possible turning point for the reinsurance market.
The significant natural catastrophes in recent years have caused losses beyond companies' budgets and it looks like the industry is divided when it comes to natural catastrophe risk. In Global Reinsurers Part Ways On Natural Catastrophe Risk--Even As Prices Rise we take a look at how reinsurers' risk appetites have evolved and how much buffer the sector has against natural catastrophe risk.
Although demand for cyber insurance is increasing substantially, investors in insurance-linked securities have not shown significant appetite for this type of risk. In Cyber Risk In A New Era: The Future For Insurance-Linked Securities In The Cyber Market Looks Uncertain we compare conditions in the cyber insurance and insurance-linked securities markets. We also consider the main challenges for investors and how interest in the fast-growing cyber insurance market could be garnered.
While Bermuda is known for its pink sand beaches, clear turquoise waters, and blue skies, Bermudian re/insurers have generated gloomy underwriting performance during the past five years. In After Bermudian Re/insurers' Half Decade Of Underperformance, Are Better Days Ahead? we show how being adaptable is key in this environment. A hybrid re/insurance model has become a key strategy as Bermudians seek to diversify away from volatility in their underwriting books.
The Lloyd's market in 2021 has turned its first underwriting profit since 2016. In Lloyd's Market 2022 Review: Let The Good Times Roll? we outline our view on the market's underwriting performance and growth potential. We also analyze the strategies of different syndicates and how they have performed in terms of operating performance and business position.
International Financial Reporting Standards (IFRS) 17 will reshape insurance accounting from Jan. 1, 2023 onward. In our Credit FAQ: How Will The Move To IFRS 17 Affect S&P Global Ratings' Analysis Of Insurers And Reinsurers? we address recent questions about the treatment of IFRS 17 elements within our credit rating analysis.
In S&P Global Ratings Top 40 Global Reinsurers And Reinsurers By Country: 2022 we present our annual Top 40 global reinsurers, ranked by net reinsurance premium written, and data from 152 reinsurance organizations from over 32 countries.
This year's Global Reinsurance Highlights captures the key issues facing reinsurance management, investors, and other stakeholders. We hope you enjoy the 2022 edition and welcome your feedback on possible enhancements for future years.
Johannes Bender Frankfurt +49-693-399-9196 johannes.bender @spglobal.com
Taoufik Gharib New York +1-212-438-7253 taoufik.gharib @spglobal.com
This report does not constitute a rating action
Saurabh Khasnis Centennial +1-303-721-4554 saurabh.khasnis @spglobal.com
Michael Zimmerman Centennial +303-721-4575 michael.zimmerman @spglobal.com
Manuel Adam Frankfurt +49-693-399-9199 manuel.adam @spglobal.com
Simon Ashworth London +44-20-7176-7243 simon.ashworth @spglobal.com
Charles-Marie Delpuech London +44-20-7176-7967 charles-marie.delpuech @spglobal.com
Robert Greensted London +44-20-7176-7095 robert.greensted @spglobal.com
Maren Josefs London +44-20-71767050 maren.josefs @spglobal.com
Ali Karakuyu London +44-20-7176-7301 ali.karakuyu @spglobal.com
Volker Kudszus Frankfurt +49-693-399-9192 volker.kudszus @spglobal.com
Mark Nicholson London +44-20-7176-7991 mark.nicholson @spglobal.com
WenWen Chen Hong Kong +852-2533-3559 wenwen.chen @spglobal.com
Eunice Tan Hong Kong +852-2533-3553 eunice.tan @spglobal.com
Anisha Tole Rachit Chauhan
Vikas Rathore Tanveen Bamrah
Tom Lowenstein
Our view of the global reinsurance sector remains negative, although we expect underwriting profitability will improve in 2022-2023 in both property/casualty (P/C) and life reinsurance.
Reinsurers will continue to struggle to sustainably earn in excess of their cost of capital due to potential heightened natural catastrophe losses, capital market volatility, increasing cost of capital, and high inflation in 2022 and 2023.
Elevated natural catastrophes and pandemic losses have severely affected performance but sparked reinsurance pricing increases over the past few years, which we expect to carry on into the 2023 renewals. Reinsurers’ strategies diverge on natural catastrophe risk, and we believe alternative capital will remain an important pillar in the reinsurance space.
Mark-to-market losses will erode capital buffers in 2022, but improving underwriting earnings, increasing investment income, prudent capital management, and sophisticated levels of risk management should sustain the industry’s capital adequacy, and we expect it to remain a strength for the sector.
The natural catastrophe business of global reinsurers has been reshaped by five years of losses that were higher than they anticipated.
Half of the top 21 global reinsurers have increased exposure and the other half have made reductions, with the aggregate catastrophe budget rising almost 20% to $15.5 billion in 2022.
Meanwhile, improved underwriting margins, coupled with sound capital, are providing further buffer against exceptional shock.
This means that if insured losses remain within budget, the natural catastrophe business could add up to 2.5 percentage points to the sector’s return on equity in 2022.
Our analysis finds that 14 of the top 21 global reinsurers would maintain a buffer at their current S&P Global Ratings capital adequacy level, even after a 1-in-100-year natural catastrophe loss.
Conditions for insurance-linked securities (ILS) investors are improving after several difficult years due to a growing number of natural catastrophes.
At the same time, the (re)insurers that underwrite cyber risk are unable to keep up with demand, leading to significant rate rises and a large protection gap.
This could provide an opportunity for ILS investors to gain exposure to cyber risk, thereby boosting growth in the cyber insurance market.
However, we believe that growth in cyber ILS will be slow in the short-to-medium term, due to substantial accumulation risk, less immunity to volatility in the financial markets, and the complexity and heterogeneity of cyber risks.
One way of attracting more ILS investors to the cyber insurance space could be to offer simplified transactions with only one, clearly defined, cyber peril, to help them better understand the underlying risk and quantify their exposure to it.
Bermudian re/insurers’ underwriting performance has been lackluster, with only a few producing underwriting profitability in the past five years (2017-2021).
Heightened catastrophe losses, and to a lesser extent COVID-19 losses, have battered performance but spurred pricing momentum in the reinsurance market.
A hybrid re/insurance model has become a key strategy as Bermudians seek to diversify away from volatility in their underwriting books.
Although we expect financial market volatility to erode capital buffers in 2022, stronger underwriting earnings, increasing investment income, and prudent capital management should sustain capitalization as a pillar of strength for Bermudian re/insurers.
We believe the Lloyd’s market will post robust underwriting performance in 2022-2024 as rates harden in many lines, after turning its first underwriting profit since 2016 last year.
This reflects management’s remedial actions in recent years, which have resulted in some of the largest syndicates in 2017 materially shrinking as they recorded significant underwriting losses.
A common feature of the fastest-growing top 20 syndicates over 2017-2021 has been their strong technical performance.
We believe Lloyd’s smaller (by volume) and better-rated book should make the market more resilient against external challenges, including natural catastrophe losses, climate change, inflation, and the ongoing Russia-Ukraine conflict.
