NU Online News Service, April 6, 3:07 p.m. EDT
The impact from the Japan earthquake and tsunami may be felt by reinsurance company stockholders if companies decide to buffer their earnings with a suspension of stock buyback programs, a report from Moody's says.
In its "Reinsurance Monitor" report, Kevin Lee and James Eck, both vice presidents and senior credit officers for Moody's, say that with the reinsurance industry sustaining the majority of insured losses from the March 11 catastrophe event, companies will be seeking to replace capital.
Reinsurer losses are estimated to range from approximately $25 billion to $50 billion, making 2011 "exceedingly challenging" for the carriers.
While prices may firm, the executives say there is not expected to be any dramatic increases in prices overall.
In an effort to replace capital, they say first-quarter losses will be replaced by suspension of planned share buybacks as a use of capital.
"The first-quarter natural disasters have depleted a portion of that capital, but the impact will be partly offset by a halt to share buybacks," the report suggests.
They also believe insurers feel compelled to deploy capital because they have already "spent money on retrocessional protection for the rest of the year."
Also helping to blunt the need for rate increase for reinsurers are the recent relaxed collateral requirements in Florida that will reduce their costs.
Moody's notes that most of the pricing direction will be driven by the large European reinsurers. In the aggregate, their action will mean stabilization in reinsurance prices.
Australia, New Zealand and Japan can expect firmer pricing as "companies look for their 'payback' for the billion spent on claims."
However, in the two largest reinsured earthquake zones in the world—New Zealand and Japan—which have both seen major losses within a two-month span, underwriters are likely to push for higher rates.
Moody's does not believe that "capital erosion of more than 10 percent over a rolling 12-month period will trigger a reconsideration of the rating."
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