Natural disasters prompt reinsurers' retreat: A setback for climate resilience

Recent wildfires in Hawaii, floods in Libya, and frequent events of natural disasters have sparked off a significant concern within the insurance industry. Reinsurers globally, businesses that ensure insurance companies, are reducing their exposure to natural disaster risks. A revelation made possible through an industry gathering held in Monaco, attended by leading insurance figures across the globe.

In a report produced by PricewaterhouseCoopers and the Centre for the Study of Financial Innovation, reinsurers highlighted climate change as their greatest risk. The report noted the growing concern of certain regions and business types becoming potentially "uninsurable".

Before the conference, Fitch, the rating agency, announced that some companies had started withdrawing from the property-casualty market during 2022. Furthermore, leading reinsurers had begun curbing their risk by implementing stringent terms and conditions. It seems insuring against climate catastrophes is becoming less favourable, despite the increase in demand and improved pricing conditions.

Conditions appear increasingly unattractive even after the insurance giant AXA raised its prices by 6.3% within the first half of the year. A notable reduction in natural catastrophe exposure still led to a 3% decrease in overall revenue for the firm. Reinsurers incline towards pulling back from insuring secondary peril weather events, smaller but increasingly frequent weather events due to climate changes.

Despite the cutback, reinsurers still seem to favour covering extreme weather events. Nevertheless, the rising frequency of these events, as indicated by data from the National Oceanic and Atmospheric Administration (NOAA), is pressurising the reinsurers.

Consequently, there's been criticism of the industry's shift away from traditional insurance methods. Robert Mazzuoli from Fitch stated that the policy changes were abrupt, leading to poor treatment for clients. However, with the declining reinsurance trend, insurance firms might have no option but increases in their rates or a reduction of covered risks.