OLDWICK, N.J.--(BUSINESS WIRE)--A string of major catastrophes, a persistent soft market and the near exhaustion of excess reserves have placed global reinsurers at a critical point, and the industry’s response may determine whether A.M. Best Co.’s outlook on the sector remains stable or turns negative. Reinsurers face dual imperatives of surviving the soft market in the short term and positioning themselves for the eventual upward turn in pricing.
- The events in the Pacific Rim early in 2011—the Christchurch, New Zealand earthquake and the Tohoku, Japan earthquake and tsunami—have overshadowed major 2010 catastrophes, but the accumulation of losses over an extended period potentially could turn the reinsurance market.
- Munich Reinsurance Company tallied 950 natural catastrophes in 2010 with insured losses approximating $37 billion, which dented the bottom line of most reinsurers but failed to squeeze out all the excess capacity that has existed in the market.
- Despite the catastrophe losses, underwriting profits continued in 2010, thanks to the ongoing flow of favorable loss reserve development from prior accident years and, more critically, the absence of a major U.S. hurricane.
- Many companies in 2010 focused on actively managing their capital; there were several debt issuances to take advantage of low interest rates and modify capital structures and share repurchases during the year represented approximately 60% of net income.
- A.M. Best is concerned that the effects of recent catastrophes on pricing might be short-lived, yielding to a resumption of soft market conditions that would cause further destruction of capital and lead A.M. Best to place a negative outlook on the reinsurance sector.
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