A return to more typical levels of catastrophe losses would make reinsurers' earnings more volatile, S&P Global Ratings said.
Reinsurance losses rose to $54 billion in 2016 from $36 billion in 2015, moving claims closer to the 10-year average. While capital adequacy in the sector remains strong, some reinsurers are more exposed and sensitive to catastrophe risk than others, the rating agency said.
Seven of the 20 reinsurers S&P Global Ratings covers could experience an erosion of their capital base should catastrophe claims move closer to normal in 2017, whereas that threat was not present to any of the companies in 2016. Falling premium prices compound the capital base exposure, the rating agency said.
"More-frequent catastrophe losses will become a bigger threat to underwriting profits and capital than they were in the past," analysts wrote.
Reinsurers' balance sheet exposure to extreme natural events has remained unchanged, but earnings exposure has increased to 0.85x from 0.69x. Companies are now twice as likely to report an underwriting loss due to natural disasters as they were in 2012, the rating agency said.
Companies that are more exposed to catastrophe risk might have to rethink their appetite for it to sustain their earnings and capital base, S&P Global Ratings added.
S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.