Reinsurers face hefty costs after ‘exceptional’ run of nat-cats

The various events are thought to have cost reinsurers approximately US$48bn, and insurers around US$86bn.

Off-setting the reinsurance losses, Willis Re reports that during the first half of 2011, share buy backs have been scaled down and US$1.2bn of new capital has entered the industry through side cars and fresh equity as some reinsurers start to position themselves for possible reinsurance rate hikes.

The Willis Re 1st first view renewals report for June/July 2011, entitled: "Mixed Messages", estimates that a string of natural catastrophes in the first quarter of 2011 has cost reinsurers in the region of 10% of their total shareholders' funds at the end of December 2010.

The firm says that reinsurers are contending with changes to some of the widely-used natural catastrophe models in America, with forthcoming releases of European catastrophe models generating similar issues. The report acknowledges this as another challenge facing buyers as they seek to understand the impact of model changes on their capital management and performance strategies.

The Willis report also found that outside of natural catastrophe classes, this differentiation in approach is clear with "property risk excess of loss pricing movements driven by individual experience and a continued softness in longer tail casualty classes, notwithstanding concerns over inflation and stubbornly low interest rates."

According to Willis Re, an event resulting in a further reduction of market capitalisation will be key in driving a harder market. The highlights a major natural catastrophe or potentially a more damaging series of medium-sized catastrophes, as well as a financial downturn or contagion arising from European debt issues, as possible triggers.

Summing up the latest renewals season, Mr Hearn said: "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. More sophisticated capital management techniques and greater transparency over profitable market niches are driving fragmentation of the cycle into territory - and class specific cycles."