An “exceptional” run of natural catastrophes over the past 16 months has cost reinsurers approximately $48 billion, according to Willis Re.

In addition, firms are contending with changes to some of the widely-used natural catastrophe models in the US, and in its 1st View report, Willis Re highlights this as a challenge facing buyers, as they seek to understand the impact of model changes on their capital management and performance strategies.

Writing in the foreword of the report, Willis Re chairman, Peter Hearn, comments: “Given all the variations in loss experience, model change, exposure change, structure change, capacity demand and geographical scope it is not easy to generalise about rate changes.”

However, natural catastrophes in the first quarter of 2011 alone cost reinsurers in the region of 10% of their total shareholders’ funds (as at the end of December 2010) and according to Willis Re, any event resulting in a further reduction of market capitalisation will be the key to a market turn.

Summing up the latest renewals, Mr Hearn says: “The reinsurance market remains in a state of uncertainty regarding its short-term future direction, but what is clear is that any turn in the market pricing cycle is unlikely to follow historic patterns.”

He adds: “More sophisticated capital management techniques and greater transparency over profitable market niches are driving fragmentation of the cycle into territory-and class-specific cycles.”

 

News posted: July 4, 2011

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