CAT EXPOSURE


Note that 2013 was benign and contributed only 4 percentage points to the combined ratio.


Globally diversified exposure can better fend off local price declines


Based on data provided by the reinsurers we rate, geographical diversification at the one-in- 250-year level averaged 55% of the undiversified aggregate catastrophe exposures in 2014 (see Chart 5) (diversification indicates how much less global aggregate exposure compares to the sum of the undiversified regional exposure contributions). In analyzing geographical diversification, we observe a range of benefit between the most and least diversified reinsurers of 65% to 40%, respectively. Reinsurers with high exposure concentration in U.S. and less than average presence internationally show the lowest exposure diversification benefits (these reinsurers have materially higher U.S. exposure than the 50% exposure that we assess for an average reinsurer risk profile). We believe that a global presence helps reinsurers ease localized pricing pressure in competitive areas. However, diversification is no panacea, especially now that catastrophe reinsurance rates in much of the world are declining. Plus, expanding into other territories for the sake of diversification alone could lead to a less profitable book on a risk-adjusted basis, especially in territories where much of the risk is not well modeled and understood. In our analysis, we would view positively those reinsurers that diversify in areas where they can demonstrate robust knowledge, modeling, and pricing of the risk.


Falling property catastrophe rates are pressuring on reinsurers’ competitive positions and could weaken their risk positions, if it continues. The least diversified catastrophe writers are the most sensitive to these particular pressures. In this context, the capacity to diversify business mix, risks, and exposure, as well as the ability to manage risk transfer efficiently and to deploy strategies to maintain competitive positions will become more important. We expect that conditions this year will test enterprise risk management capabilities within the industry as reinsurers more closely scrutinize their risk appetite management and underwriting discipline. 


Charles-Marie Delpuech London, (44) 20-7176-7967


charles-marie.delpuech@standardandpoors.com


Jason S Porter, CFA New York, (1) 212-438-3348 jason.porter@standardandpoors.com


60


Chart 3: Net One-In-250-Year Catastrophe Exposure Relative To Net Catastrophe Premiums Written


100 120 140


20 40 60 80


0 0 5 10 Midsize global


Global London


15 20


NPW = Net premiums written. Data as at Jan.1 2014 © Standard & Poor's 2014.


Bermuda 25 30 Catastrophe-exposed premium to total non-life NPW (%) 35 40 45


Property-casualty and short-tail


Chart 4: Five-Year Catastrophe Loss Impact On Combined Ratios (2009-2013)


10 15 20 25 30 35


0 5


0 © Standard & Poor's 2014. 5


Property/casualty short-tail


London Bermuda Midsize global Global 10 15 20 Five-year average catastrophe impact on combined ratio (%) 25 30


Chart 5: Net One-In-250-Year Undiversified Probable Maximum Loss Contribution By Peril


Japan earthquake Europe (including U.K.) U.S. earthquake U.S. wind


Diversification Rest of World Australia Japan wind


-70 -60 -50 -40 -30 -20 -10 0 10 20 30 40 50 Relative stand-alone contribution by peril (%)


The red box shows the first quartile, while the green box shows the third quartile. The band inside the box shows the average, and the extremities represent the minimium and the maximum of the observations.


© Standard & Poor's 2014. Data as at Jan.1 2014.


Global Reinsurance Highlights 2014


Five-year standard deviation of catastrophe impact on combined ratio (%)


Net 1-in-250 year catastrophe loss impact on loss ratio (%)


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100