Reinsurers may need to tap the capital markets if the catastrophe losses continue to pile up, according to a report issued by Standard & Poor’s.
“[I]t is possible that the cumulative effects of these losses could erode the capital of a few re/insurers to the point that they might need to access the capital markets for replenishment, which could result in a rating action,” the report said.
The report titled “Barely A Quarter Into 2010, Insured Catastrophe Losses Have Already Started To Mount” was issued on Friday.
For reinsurers that have reported, the weighted average catastrophe losses from European Windstorm Xynthia and the Chilean earthquake constitute about 25 percent of 2009 reported net income.
“Therefore, we expect that these losses will be an earnings event rather than a capital event and should be contained within the first-quarter 2010 results—with the exception of a few outliers,” the report said.
But S&P points out that it is still early in the year and that the upcoming North American hurricane season could change the loss scenario significantly and hamper firms’ capital positions.
“[I]n many cases, catastrophe losses have already exhausted more than 50 percent of re/insurers’ budgets, thereby reducing the cushion for the remainder of the year,” the report added.
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