As the Earth warms and natural disasters increase, the plight of insurance companies is becoming increasingly serious.

In 2023, the world's cataclysm insurance losses exceeded 100 billion dollars for the fourth year in a row. In 2024, this trend continued: according to the latest analysis by Munich Re (Munich Re), losses in the first half of the year reached $62 billion, well above the 10-year average of $37 billion.

Normally, this won't cause trouble for the original insurance company, as they can offset some of the risk by purchasing reinsurance. But the difficulty of reinsurance has increased. In the face of climate change, rising inflation, and increasing property risk, reinsurance companies have raised prices and proposed conditions that are more favorable to them, such as increasing the level of coverage of insurance policies.

Charles-Marie Delpuech (Charles-Marie Delpuech), an insurance credit analyst at S&P Ratings (S&P Ratings), said, “Insurance companies have been forced to take more risks, and the overall market has undergone structural changes.”

The data shows that the business performance of reinsurance companies has greatly improved as a result. According to S&P data, historically, the world's top 19 reinsurance companies bear about 20% of natural disaster losses each year, but it has declined sharply in the past three years and has dropped to around 10% in 2023.

The main reason is that the reinsurance industry is increasingly reluctant to support “secondary disasters,” that is, smaller but more frequent extreme weather events such as tornadoes, thunderstorms, fires, and floods. For the insurance industry, these localized events are more difficult to simulate and manage, in part because they are caused by climate change.

The share of insured losses due to secondary disasters is also rising. According to estimates by insurance brokerage firm Aon Plc (Aon Plc), strong global convective storms alone caused insured losses of about 70 billion dollars in 2023. This is equivalent to 59% of all natural disaster losses.

Del Pueje said that in 2021 and 2022, reinsurance companies were dragged down by secondary disaster losses, but since then they have reduced their exposure to such risks.

According to S&P, by 2023, “a large portion of the losses will be mainly borne by the original insurance company,” especially in the US, because the US has the most severe convective storms. And the losses in the reinsurance business “are entirely within the budget of its natural disaster burden.”

Del Pueje pointed out that even if a once-in-a-century natural disaster occurs, causing annual industry losses of more than 250 billion US dollars, most reinsurance companies will still have safety guarantees.

S&P said, “Our calculations show that under these circumstances, the capital buffer for the entire industry will still be above the 99.99% confidence level.”

As a result, reinsurers seem to be in a very good position to withstand both major disasters, such as major hurricanes, and secondary disasters with lower risk exposure.

Now that reinsurance companies feel they have a foothold, they are confident they can expand their business — but on their own terms. This means higher prices and stricter policy liability trigger clauses.

Moodys Ratings (Moodys Ratings) said the company is more optimistic about reinsurance companies. On September 3, the company raised the rating outlook for the global reinsurance industry from “stable” to “positive” and cited several factors, including rising premiums, tighter policy conditions, and lower exposure to secondary disasters.

According to Standard & Poor's, according to the January renewal situation, the 19 largest reinsurance companies faced an average increase of 14% in their overall risk exposure to natural disasters. Their consolidated budget for absorbing “natural disaster” losses also increased from $17.1 billion in 2023 and $15.5 billion in 2022 to around $19.2 billion in 2024.

S&P said it is expected that global reinsurance companies will increase capital investment in the next two years. In 2023, the industry's return on capital surpassed the cost of capital, and for the first time in four years, 2024 and 2025 are likely to continue this trend, “thereby solidifying our view that the industry's prospects are stable.”