European reinsurers doubling down on property cat as rates rise, reported PMLs indicate

Global reinsurers increased exposure to property catastrophe in pursuit of the market's heightened rates, with the larger European reinsurers leading the charge, a  Moody's study of reported probable maximum loss (PML) levels by major reinsurers has indicated.

“Reinsurers are taking advantage of improving expected returns by increasing their exposure to property catastrophe reinsurance business,” authors claimed.

Property catastrophe exposures for US wind, US earthquake and Japan earthquake are at their highest weighted-average levels as a percentage of equity capital since before 2011. European wind exposure rose to a seven-year high.

The large European reinsurers are leading the way, while the average of US/Bermuda names were roughly flat overall, dragged down by a handful of headline cases of de-risking.

Amongst the US/Bermuda laggards, Arch Capital has shifted towards its mortgage credit risk exposure, while Everest Re and AXIS Capital have de-risked for earnings stability, Moody's noted. Those reductions offset eye-opening gains for Lancashire and select increases for Partner Re.

The European based global reinsurers, in contrast, often enjoy “the larger scale and excellent geographic and product diversification” allowing them to capture opportunities with less pressure on their overall credit profiles.

Conditions look right for rates to rise further and draw reinsurers showing the capacity to capitalize, Moody's believes.

“We think property catastrophe reinsurance pricing still has room to go higher,” analysts wrote.

“Weak sector profitability in recent years from above-average catastrophe losses, inflationary pressures, a focus on the impact of climate change on catastrophe event frequency, strong demand from ceding companies and tight supply conditions in the collateralized retrocessional market all point to higher pricing in the months ahead.”

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