Euro insurers fail to scratch back reinsurance, little hope near-term

European insurers have failed to close the gaps in their reinsurance coverage that arose during the 2023 market reset, leaving many ‘vulnerable’, and with little hope of recapturing lost coverage in the foreseeable future, analysts at Moody’s have said.

“There has been no improvement in primary companies’ reinsurance protection in 2024, with coverage remaining very similar or slightly below 2023 levels,” Moody’s analysts said of data from their own survey of primary carriers.

“As a consequence, the sector remains vulnerable to an accumulation of weather events,” analysts wrote.

Comments come after a year in which a series of “substantial” weather-related secondary perils hit insurers hard in 2023, but slipped through new gaps in reinsurance programmes, created when retentions rose and aggregate programmes dried up.  Primary carriers were left holding a share of the losses “amply exceeding” their historical average, Moody’s said.

Those heightened net exposures look structural rather than cyclical, Moody’s believes, and reinsurers are “unlikely to restore previous coverage levels.”

“Higher retention of weather risk is likely to remain a long-term feature of the insurance sector,” analysts said.

In response, primary insurers may be forced to attempt price hikes to counter the impact of increasing weather-related claims on earnings and, in some cases, capital. That could prove “challenging” as insureds are only recovering from price hikes driven by inflation.

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