Combined catastrophe budgets among the top 21 global reinsurers rose nearly 20% to $15.5 billion this year, but these companies differed in strategy, with some taking more risk and others less, according to a report by S&P Global Ratings Inc.
That diversity may be the result of higher-than-expected catastrophe losses over the past five years, according to S&P.
In addition to the rising losses, the growth in catastrophe budgets may also be due to reinsurers allowing for exposure growth while factoring greater climate variability into their forecasts, S&P said.
Reinsurers also continue to use retrocession as part of their overall catastrophe strategy, although rising retrocession rates may lead reinsurers to gradually cede less risk, according to the report.
“Retrocession, including the use of third-party capital, remains a flexible and strategically important way of managing tail risk. Data from 1January 2022 suggests that reinsurers have largely maintained their use of retrocession since 2021,” the report said, but noted that “prices in the retrocession market continue to rise. This means that reinsurers may have to give up proportionately less of the risk if it becomes too expensive.”