Billions in Cat Losses Have Yet To Find Their Way Into Rates

Property/casualty reinsurers have incurred $16 billion in catastrophe losses in the first quarter of 2010 leaving them in a precarious position going into the new hurricane season, according to the most recent quarterly rate roundup by Willis Re.

But despite the losses, reinsurers have not yet reacted on pricing and will likely wait until June and July renewals to decide how to translate losses into rates.

“While one poor quarter, which is an earnings issue for reinsurers, will not be sufficient to trigger a general market turn on its own, it is likely to stiffen reinsurers’ resolve on renewals later in the year as the size of the recent catastrophe losses develop and back year reserve releases reduce,” according the Willis report titled Calm Amid Calamity.

According to the report, the first quarter of 2010 is likely to be the worst ever for natural perils losses in the reinsurance industry and added that reinsurance earnings for the period will be worse than those of primary insurers

Most losses will be absorbed on reinsurers balance sheets without a corresponding increase in rates, according to Willis.

In the U.S. the report says that firm orders were down between 5 and 10 percent for nationwide programs and there was no evidence of a capacity shortage. The report adds that the U.S. has seen modest rate reductions and hardening in specific territories and classes during the April 1 renewals.

While the April 1 renewals may be spared, June and July renewals may see a slight hardening market as reinsurers attempt to digest recent cat events like the Chile Earthquake and European Windstorm Xynthia and prepare for the North Atlantic Hurricane Season.

“[The] largest losses are coming from smaller markets, where they are less able to generate significant premium volumes to accelerate post-loss payback.” Willis argues in the report. “At the same time, losses in the first quarter of the year leave reinsurers exposed to the historically more loss-prone third and fourth quarters.”

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