With 2025 marking the fifth consecutive year in which global catastrophe claims have exceeded $100 billion, analysts at J.P. Morgan emphasised that the impact on reinsurers has been less damaging, in the main because higher cedant retentions continue to shift a greater share of losses back to primary carriers.
Swiss Re Institute recently reported that 2025 will see over $100 billion of natural catastrophe losses covered by sources of insurance and reinsurance capital, with the research part of the reinsurer projecting a total of around US $107 billion for the year.
According to a recent report from J.P. Morgan, analysts explained that the shift that was seen in reinsurance retentions at the beginning of 2023 has made a meaningful difference to profitability for the global reinsurance industry.
The report noted that prior to 2023, the narrative was that catastrophe losses had increased and this had been a material headwind for reinsurers responsible for taking on parts of catastrophe risk from the insurance markets.
Analysts explained, “But we can see that 2021-25E have been average years for catastrophe losses relative to the size of the industry using a 1980-2025E average.”
Adding: “What seems to have happened in our view is that there has been a shift in who has been responsible for paying claims.”
As per the analysts, reinsurers exceeded their catastrophe loss budgets in 2021 and 2022, but since 2023 they have remained in line with or below budgets on average.
“However if we look at 2023-2025 years at an industry level, they have not been material outliers in terms of being below average on claims. This suggests to us that the shift up that was seen in reinsurance retentions at the beginning of 2023 has made a meaningful difference to profitability for the industry,” J.P. Morgan added.
Essentially, this indicates that the price hikes reported during the hard market did not fully reflect the enhancements in profitability resulting from increased retentions and attachment points.
Nevertheless, even in a softening market, as long as those retentions are maintained, reinsurers and insurance-linked securities (ILS) can achieve greater profitability than they did in the previous soft market when retentions were significantly lower.
Reporting from analyst firms including J.P. Morgan suggests reinsurers are remaining largely firm on attachments at the end of year renewals.
Reflecting the fact reinsurance capital providers are cognisant of the importance of maintaining the equilibrium in terms of risk sharing between primary and reinsurer tiers of the marketplace, perhaps even more so now as pricing retreats.
Where attachments are coming down we have seen in the catastrophe bond market that pricing appears commensurate with the increased risk of attachment that brings and it’s presumed similar is being seen in traditional reinsurance and retrocession renewals.
