By CYRIL TUOHY, managing editor of Risk & Insurance®
Reinsurance price increases during midyear renewals for U.S. property-catastrophe insurance coverage are expected to come in at between 8 percent and 12 percent, according to industry analysts.
The increases will help pay for property claims filed in connection with more than $43 billion in reinsurance losses sustained over the past year and a half, from oil rig blowouts, to earthquakes in Chile and New Zealand, to flooding in Australia, to quakes and tsunamis in Japan, to tornadoes in the United States.
Rates in the property-catastrophe reinsurance markets were up in the "8 percent to 12 percent range," said a client note issued last week by analysts Keefe Bruyette & Woods. The outlook "is for ongoing improvement," the analysts wrote.
Reinsurers will later this month begin to report second-quarter earnings, but already the earnings season is shaping up to be "ugly," in the words of KBW.
Validus Holdings Ltd. already advised investors that U.S. storms in April and May are going to cost the company between $55 million and $75 million.
Hiscox Ltd., the Bermuda-based insurer and reinsurer, said on June 28 that its losses from U.S. tornadoes and storms during April and May are expected to cost the company about $55.9 million. That number is based on an estimated industrywide loss of $15 billion to $25 billion in the spring U.S. storms, Hiscox said.
Arch Capital Group Ltd. also said June 28 that second-quarter catastrophes will result in losses of between $90 million and $110 million.
Willis Re estimates that the reinsurance industry has suffered as much as $48 billion in insured losses over the past 16 months and faced "an 'exceptional' run of natural catastrophe losses," wrote Chairman Peter Hearn, in a July 1 message to clients.
Even seasoned veterans of the property insurance business have expressed disbelief at the magnitude of the losses, which reached a nadir with the March 11 tsunami spawned by the Tohoku earthquake.
"It's the devastation of the residential areas that are not unlike the Missouri tornadoes," said Ruud Bosman, vice chairman of FM Global, in a June interview last month with Risk & Insurance® shortly after he returned from Japan. "I've never seen anything like it in 40 years in the business. I've never seen a year like this before."
? and the year is only halfway through.
Estimates released July 1 by New York-based reinsurance intermediary Holborn revealed reinsurance industry losses of $43.5 billion--equivalent to 20.2 percent of premiums--at the 2011 midpoint, compared with losses of $19.8 billion at the 2010 midpoint, according to one news report.
The dollar losses for 2010 and 2011 collectively represent the worst two-year block of large losses to the reinsurance industry, worse even than 2004-2005, when the U.S. was hit by multiple hurricanes that caused more than $70 billion in insured losses.
While U.S. catastrophe pricing is generally higher, any major spikes will be decided on a case-by-case basis depending on the risk, wrote Willis' Hearn.
"The reinsurance market as a whole has reacted reasonably logically with a differentiated approach driven on a case-by-case basis," he wrote, noting that some reinsurers have started to "position themselves for a possible market turn."
He also noted that the industry's capital base remained robust and that $1.2 billion worth of new capital had entered the industry since the beginning of the year, reasons why the industry is seeing more tightening of capacity rather than a hardening of pricing.
July 5, 2011
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