Reinsurers face being hit by a double whammy of a decline in profits and exposure to high-frequency risks.

A report from ratings agency Standard & Poor’s said that the global industry may reassess their exposure if annual loses from catastrophes rise to normal levels.

The report said that the sector’s “extremely strong” capital position made it better able to weather a storm of extreme events.

But it added that demand for cover against high-probability exposure has fallen and most reinsurers have taken defensive actions, retroceding more high-frequency risk.

But the S&P report said: “However, some reinsurers’ relative exposure to these one-in-ten-year events has increased.

“On a normalised basis, technical profitability is deteriorating to such a degree that reinsurers are now twice as likely to fail to break even in a calendar year as they were in 2012, due to their exposure to catastrophe risk.”

And the report warned: “In our view, if reinsurers faced a series of midsize catastrophe events resulting in a slightly above-average catastrophe year, the sector could move into unprofitable underwriting territories.

“The big winners would be those that have taken action earlier to improve their profitability outside the catastrophe space and reduce their exposure to the sort of high-frequency, high-probability events that recur every 10 years or so — one-in-ten-year risks.

“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.”

The report found that, of the 21 global players under review, 15 were likely to maintain a capital adequacy of at least BBB in the wake of a 1-in-250-year aggregate loss from natural disasters.