In an interview with Reinsurance News during the 2025 RVS in Monte Carlo, Salman Siddiqui, Associate Managing Director at Moody’s Ratings, and James Eck, Vice President–Senior Credit Officer at Moody’s Investors Service, explained that while a single $100 billion catastrophe loss event in the past would have eroded balance sheets, today it could instead be an earnings event.
“They’re being taken by ILS, cat bonds, sidecars, all sorts of stuff, going straight into the capital markets,” he said. “So that $100 billion event, which in the past would have eroded balance sheets, today could be — could be — an earnings event.”
He added that, based on modelling by Moody’s Insurance Solutions, if Hurricane Andrew were to occur today, insured losses would likely exceed $100 billion. Such an event, he said, would tighten market conditions and likely trigger a return to a hard market.
Siddiqui said, “We would see tightening, but more importantly, it would give a return to a hard market, because we have to remember rates are actually still quite high. And it might be that we see rates increasing in the top layers, whereas the middle layers may continue to stay where they are. I think a lot of the softening that we’ve seen is probably in the top layers so far — those risk-remote layers — so I think that might go back up.”
Eck highlighted that there have been over $100 billion in natural catastrophe losses annually for five consecutive years.
He said, “It seems like companies have been able to navigate fairly well, just in terms of where pricing has gone and what the attachment points are — pushing a lot of that loss to the primary companies.
“But when you do have those big tail hurricane events, there’s going to be a higher proportion going to the reinsurance market, which would then flow back into ILS and retro. It’s hard to say, but there’s a lot of capital.
“A lot of them also have primary businesses and other things that they do. Having that diversification is certainly helpful.”
During the interview, they also spoke about Moody’s recent outlook revision on the global reinsurance sector to stable from positive, explaining why it changed and what factors could shift it back to positive — or to negative.
Siddiqui explained, “We had a positive outlook on reinsurance last year and that was driven by the fact that we had upward momentum on property cat rates. We had seen year-over-year increases, and now we’re in this period of a softening market. So rates are coming off between five and 10%, but although that’s coming down a little bit, our view is that rates are still very adequate. There’s still a lot of margin available for reinsurers to earn out, and we think that will remain the case for 2025 and 2026. Whilst there is some decline in property prices, casualty prices continue to strengthen and firm up, although adequacy of those prices is uncertain. So although those prices have gone up quite a bit, it’s still hard to say whether they are sufficient, given the latency issue.
“Other things supporting our view on the stable outlook are interest rates and investment income — those are still very, very supportive. So companies’ earnings are considerably supported by investment income. And then, last of course, as a rating agency, is capital.”
In terms of what could shift the outlook back to positive, Siddiqui said that in the first place, a positive outlook from Moody’s is very rare, with last year being the first time in 15 years that the agency had one for the sector.
“You need a confluence of everything going right and no dark clouds. So I think the main issue is the softening market. And if we have a really large loss, it will have to be a material loss — I wouldn’t put a number on it — but something really high to have rates go back up,” he said.
Eck continued, “It seemed like the California fires had no impact. I thought that combined with the hurricanes last year would have provided more support, maybe it provided some, but it still came down.”
On the other hand, regarding a change in outlook to negative, they said they are mostly watching attachment points and terms and conditions.
Siddiqui stated, “I think if we start seeing erosion in terms and conditions and a lowering of attachment points, that is when you start getting more concerned, because that’s when we would be back to the bad old days, with reinsurance companies providing earnings coverage beyond, say, balance sheet coverage. We’re nowhere near that. Certainly the conversations we’ve been having at this conference, and in the time preceding this, suggest the reinsurance market is disciplined and holding the line on attachment points and terms and conditions. But I think if those start to erode, interest rates decline, and competition intensifies, then we would go negative.”
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