Reinsurers have avoided a surge in severe convective storm losses after reducing their exposure to frequent secondary perils, S&P Global Ratings says.

Global natural catastrophe insured losses last year topped $US100 billion ($153 billion) for a fourth consecutive period, driven more by the frequency of medium-severity events, particularly storms in the US, rather than less common major disasters.

“In 2023 and the first half of 2024, insured losses from secondary perils, especially severe convective storms, surged to unprecedented levels,” S&P analyst Taoufik Gharib said. “Primary insurers bore the brunt of these losses, while reinsurers’ strategic positioning largely shielded them.”

Reinsurers reduced their interest in lower layers of cover, raised attachment points and showed little appetite for aggregate protection covers in a reset after pricing strategies and actions before 2023 proved insufficient to deal with the increasing frequency and severity of natural disasters.

S&P says in a report that over the past 18 months, it has taken no negative rating actions on reinsurers due to natural catastrophe losses, but it took negative actions on a few US primary insurers when it believed elevated losses dampened underwriting performance.

“While the demand for natural catastrophe reinsurance protection remains robust, it will be crucial to observe how long reinsurers can maintain their underwriting discipline,” Mr Gharib said.

“The risk of yielding to competitive pressures, as witnessed in the past, will be a critical factor influencing reinsurers’ future underwriting profitability.”

The impact of natural catastrophe losses on the combined operating ratios of 10 selected reinsurers fell to 4.1 percentage points last year, down by 5.5 percentage points when compared with the average of the previous four years. For five selected reinsurers, the decline was more pronounced at 6.2 percentage points.

Last year, severe convective storms led to a record $US64 billion ($98 billion) in insured losses, comprising 60% of global insured losses from all natural catastrophes.