Things could get rougher for global reinsurers if annual natural catastrophe claims keep moving closer to the long-term average, Standard & Poor’s said in a new report.

It turns out that upward trend has been substantial. As indicated by Aon data cited by S&P, global reinsurers saw their losses from natural disasters rise materially to $54 billion in 2016, versus $36 billion in 2015 and $42 billion in 2014. With this trend in mind, the ratings agency said reinsurers are now twice as likely to report an underwriting loss due to natural disaster as they were in 2012.

“Global reinsurers’ exposure to unpredictable and high-severity natural catastrophe events is a major driver of reinsurers’ earnings and capital volatility, and while we are seeing capital at risk reduce slightly as a percent of equity, earnings exposure is up,” S&P Global Ratings analyst Charles-Marie Delpuech said in prepared remarks.

He added that because prices are still softening across all lines of business (global property catastrophe prices dipped 4 percent to 6 percent during 2017 renewals), more frequent catastrophe losses will become a bigger threat to underwriting profits than they used to be.

“Reinsurers are therefore likely to see heightened volatility in earnings,” Delpuech added.

S&P noted that reinsurers still have an “extremely strong capital adequacy” that provides some industry cushion, but that is undermined because reinsurers have more risk sensitivity than others.

As a result, S&P expects that reinsurers will continue a trend of shying away from property catastrophe business. Standard & Poor’s added that it doesn’t expect any upticks in risk appetite because of how visible the additional price declines in the space have been during 2017 renewals.

Finally, Standard & Poor’s said that volatility should increase if reinsurers hold their current risk exposure and don’t do anything to reduce it.

The full report is called: “Global Reinsurers’ Earnings Volatility To Increase As Exposure To Natural Catastrophe Risk Remains Largely Unchanged.”

Soure: Standard & Poor’s