NU Online News Service, April 1, 1:58 p.m. EDT
The reinsurance industry can financially withstand the losses from Japan's Tohoku earthquake, but the compounding of losses from Australia and New Zealand is putting strain on reinsurers and having some price impact, according to a Guy Carpenter report.
The report tracks other recent analyses of the impact from first-quarter catastrophes on the reinsurance industry.
In its 12-page report on April 1 Reinsurance Renewals, Guy Carpenter says the Tohoku earthquake will likely be "the most expensive insured loss outside of the United States in history."
Current model loss estimates put insured loss between $12 billion and $30 billion—and with catastrophes in Australia and New Zealand, it has been "a very challenging first quarter…"
Adding to the litany of loss events, Guy Carpenter notes the political unrest in North Africa and the Middle East—and that all adds up to "the most costly first quarter on record."
It's too early to determine the impact on the overall reinsurance market, but the reinsurance industry was well capitalized at the Jan. 1 renewals with $19 billion more in capital than anticipated, according to Guy Carpenter's estimates. The broker also estimates total capital between $160 billion and $180 billion for the industry.
Taking the Tohoku earthquake loss and combining it with other losses, Guy Carpenter estimates that for the first quarter total insured losses stand between $27 billion and $50 billion.
"Many reinsurers' 2011 natural catastrophe budgets have already been exhausted, and a portion of the sector's excess capital has been absorbed," the report says. "Clearly, any additional large losses incurred in 2011 will put additional strain on reinsurers' capital."
However, the industry "is well positioned to deal with such a scenario," Guy Carpenter adds, noting total sector capital.
The losses leave in question the midyear June and July reinsurance renewals, but in the short term "we, at the very least, would expect to see increased demand for reinsurance cover."
Renewals for the U.S. property-catastrophe market for April 1 were showing "signs of transition" and were "roughly flat to up," Guy Carpenter says. The broker compares this to the Jan. 1 renewals where rates were down 6 percent to 10 percent.
The combination of heavy natural catastrophe losses worldwide and the release of RMS's latest model may have had some affect on the pricing direction, Guy Carpenter says, leading to "a cautious marketplace."
A separate report released today by Aon Benfield says the strains on the industry have not affected the overall soft market direction as renewals for U.S. property catastrophe rates decreased 5-10 percent.
The reinsurance broker predicts June and July renewals will be flat to down 5 percent.
On Japan risks, typhoon exposed program renewal rates increased 5-10 percent and earthquake programs increased 25-50 percent.
Most Japan programs set for renewal as of April 1 were delayed and extended by insurers as they assessed losses.
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