Reinsurers to Absorb Sandy Losses; Storm Could Cause Loss for Combine Re Cat Bond

Reinsurers should be able to absorb losses from Superstorm Sandy without a negative ratings impact, says Fitch Ratings. 

Meanwhile, Moody’s Investors Service says the storm could, in a worst-case scenario, cause losses for the Combine Re catastrophe bond.

Regarding reinsurers, Fitch says, “We view the reinsurance sector's capital position as solid, as a lower level of catastrophe losses posted thus far in 2012 have allowed companies to recover from the record catastrophe losses in 2011.”

Fitch says that as industry losses eclipse $10 billion, reinsurers will see a greater share. But assuming losses fall within estimates from Eqecat ($10 billion to $20 billion) and AIR Worldwide ($7 billion to $15 billion), Fitch predicts that the storm will not be a “market-changing event that would cause reinsurance pricing to increase significantly at the Jan. 1 renewals.”

Fitch notes that, before Sandy, reinsurance-renewal rates were expected to range from down-5 percent to up-5 percent at Jan 1. Given the storm, Fitch believes a decline in property-catastrophe rates is less likely. But any significant rate increases, the ratings agency adds, “should be restricted to the loss-affected lines in the Northeast U.S. region.

Regarding the Combine Re cat bond, Moody’s says if losses end up being at the high end of current estimates, they will exceed the first loss layer that absorbs net losses before the rated tranches kick in. Moody’s says Combine Re is a $200 million indemnity cat bond issued by Swiss Re in March for the benefit of COUNTRY Mutual Insurance Company and North Carolina Farm Bureau Mutual Insurance. 

"The property losses will cause Combine Re to use up additional protective subordination and, in the worst case, will result in losses on the cat bond," says the ratings agency.

Moody’s notes that the cat bond covers against several perils in specific regions of the US, including severe thunderstorms, hurricanes, earthquakes and winter storms, but it excludes hurricanes in Florida. 

As such, Moody’s says the hybrid nature of Sandy could influence what type of covered event the storm will be: hurricane, severe storm or winter storm. “In the former case, losses owing to this event are subject to a $200 million hurricane per-event limit, while there is no limit for the latter cases,” says Moody’s. 

The ratings agency says there will be no effect on other cat bonds. “Unlike Combine Re, the other five cat bonds we rate with exposure to hurricane risk (GlobeCat, EOS Wind, Vega Capital Series 2010-I, Successor X Series 2012-1 and Mythen Re) all cover losses only to the extent the attachment point is less than the loss on any single qualifying event. As a result, only very large and devastating hurricanes can trigger losses to investors, events that happen once every 250 years on average.”

About the Author
Phil Gusman, PropertyCasualty360.com

Phil Gusman, PropertyCasualty360.com

Phil Gusman is Managing Editor of PropertyCasualty360.com. Prior to joining National Underwriter in 2008, he was Editor of Insurance Advocate. Gusman has also served as Associate Editor of Crackdown!, an insurance fraud publication, and Assistant Editor of Empire State Report, which covers New York politics. He graduated in 2002 from Plattsburgh State University in New York. Gusman may be reached at pgusman@summitpronets.com. Follow him on Twitter: pgusman and PC360_Markets

Comments

Resource Center

View All »

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Get $100 in leads with $0 down!

NetQuote's detailed, real-time leads have boosted sales for thousands of successful local agents across the...

The Growing Role of Excess & Surplus Lines in Today’s...

The excess and surplus market (E&S) provides coverage when standard insurance carriers cannot or will...

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.