Insurance Industry News from ProgramBusiness.comReinsurance Price Increases Anticipated
Reuters reported that insurers wrapped up talks in Monte Carlo on premiums for their own risk cover, fearing big price rises as a result of Hurricane Katrina.
The message from informal meetings on next year's prices was that prices will go up -- perhaps by a lot.
The reason is that reinsurers are struggling to measure their exposure to the hurricane, which is likely to be the costliest ever insured disaster with a bill of as much as $60 billion.
"Reinsurers may have to pay more than half of the ultimate industry claims from Katrina," said one industry source. That may not only wipe out some reinsurers' second-half profits but could also eat into their capital, making price hikes inevitable, the source added.
This year's meeting has been dominated by Katrina, as reinsurers have been forced to look again at their initial loss estimates as the scale of the devastation becomes clear.
Swiss Re more than doubled its expected bill from the disaster to $1.2 billion, and said it will miss its target of 10-percent growth in earnings per share this year.
Rivals Munich Re and Hannover Re warned their claims bills may also rise, potentially cutting their profits further, as estimates of the total insured losses from the catastrophe keep rising.
Their clients, the insurers, are becoming increasingly anxious to know how this will affect them.
The chief executives of Munich Re, Swiss Re, Hannover Re and Lloyd's of London, have all warned that price rises across virtually all types of reinsurance are almost inevitable. Price rises of between 5 and 20 percent may be imposed on various types of cover hit with steep claims from Katrina, reinsurers said. Furthermore, reinsurers warn that prices for natural catastrophe cover may be pushed up for good as Katrina starkly illustrates the risks they actually run from a massive disaster.
The message that rates are going up leaves European insurers who buy substantial reinsurance cover -- such as Allianz, Axa, Generali or Zurich Financial Services -- with an unenviable choice.
Do they spend millions of euros more on risk cover, which may eat into their profits, or buy less reinsurance and take the risk that they could be left exposed if a big disaster occurs?
Another option is that they simply stop writing some types of insurance for which they cannot get reinsurance at an acceptable price, which could leave individuals and companies scrambling to cover themselves.
What is not yet clear is whether Katrina will spark a wave of new start-up reinsurers eager to take advantage of the high prices on offer.
Hurricane Andrew and the World Trade Center attacks, which both paralysed the reinsurance industry for a time, prompted the creation of a number of new companies, backed by money from investment banks and hedge funds.
Credit rating agency Standard & Poor's said it had already had enquiries from companies about them possibly raising fresh funds to start new ventures. Hannover Re CEO Wilhelm Zeller said he had been called by investment bankers offering to fund a joint venture if he spotted a gap in the market.
An influx of new capital, stoking competition for insurers' business, could mean that, despite reinsurers' talk of Katrina being an "industry-changing event", the "hard market", where high demand for reinsurance pushes prices up, may not last as long as insurers fear and reinsurers hope. ://www.pingbnr.com/b.Click for the whole story...