Falling prices have left global reinsurers potentially exposed if catastrophe levels return to normal, according to a report from Standard & Poor’s (S&P).

High levels of capital have given the sector greater resilience, the ratings agency says.

“However, as prices continue to decline, global reinsurers will be unable to hide behind benign catastrophe years any longer.

“Margin compression will expose the sector to higher earnings and capital volatility. If reinsurers faced a series of mid-size catastrophe events, resulting in a slightly above-average catastrophe year, the sector could move into unprofitable underwriting territories.”

The big winners would be groups that have taken early action to improve profitability outside the catastrophe space and reduce exposure to high-probability events, S&P says.

“If pricing continues to deteriorate across all lines and loss experiences revert to a more normal level, players that have mainly addressed the risk from a solvency perspective and are overexposing their earnings could see their competitive position deteriorate.”