Recent revisions to its cat model by Risk Management Solutions could result in double loss indications for some portfolios—or even more.
But Frank Pierson, executive vice president and chief technical officer of independent reinsurance brokerage firm Holborn Corp., said reinsurers may be able to absorb the model changes without huge increases because they already thought the models were coming in low.
"Now that the models incorporate the [2004 and 2005 hurricane] losses, the impact on primary insurance could be moderated by the prices reinsurers were already using."
Mr. Pierson still cautioned that what he termed the "I Don't Believe Factor" among reinsurers may soften as their confidence in models grows, resulting in upward pressure on pricing.
Another observer noted the recent RMS revision may actually lessen confidence in the models. Karen Clark, president and CEO of Karen Clark & Co., a risk-management firm in Boston, said she is "not sure reinsurance companies will give as much credibility to the new model. A 100-200 percent change can stop you in your tracks," she said.
Moody's Investors Service has said revisions in catastrophe models alone most likely won't offset the lack of demand in the reinsurance market. Moody's said reinsurance demand remains stifled because primary insurers have tighter reinsurance budgets and lower volumes due to reduced economic activity. This is not expected to change due to the model revisions, "despite the expectation of increased modeled losses in certain peril zones," Moody's said.
However, the model revisions, when combined with catastrophes during the first quarter, could mean a change in the market, according to RenaissanceRe chief executive Neill Currie. Mr. Currie made his comments before the magnitude 9.0 earthquake and tsunami that recently struck northern Japan.
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