Should 2006 prove even more expensive in terms of insured losses than this year, Bermuda insurers may not get another opportunity at recapitalization, said one leading industry analyst.
Bear Stearns London-based property casualty analyst William Allen said that a costly 2006 season could prove a boon to large reinsurers.
"We believe some Bermudan reinsurers have been given one last chance for survival," Mr. Allen wrote. "If capital bases are depleted again, we do not believe the capital market will be so ready to recapitalize them."
The consequent reduction in industry capacity could increase the pricing power of Munich Re and Swiss Re, Mr. Allen added.
The retrocession market, or what Mr. Allen terms "the final frontier," will also play a key role in just how firm the 2006 market remains.
"The importance of the retro market has been underestimated in the past as little information is publicly available," Mr. Allen wrote.
Berkshire Hathaway plays the leading role in the retro market. "But its cover may come late and at considerable cost," Mr. Allen wrote. "At this stage we only expect the other writers to follow behind."
Market pricing should be tempered by the European reinsurers' bias to the risks on its own continent. "We conclude that Hannover Re's non-proportional bias should allow it the strongest rate increases," Mr. Allen wrote.
But the uncertainty about retro protection and the potential of shortfall in the level of capital for a "double-A" rating could lead to a reduction in the overall book of risk, he added.
As for overall pricing, Mr. Allen sees a 7 to 10 percent rise with some specialty areas such as U.S. offshore marine-energy rising as much as 400 percent.
Property catastrophe could see increases of up to 100 percent, but liability pricing should remain flat, Mr. Allen said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.