Despite record losses in the first quarter of 2011 and a hurricane season predicted to be exceedingly active, the reinsurance industry is in good spirits. While several insurance companies are dreading hurricanes reaching land, reinsurers expect that one storm causing extensive losses could mark the turning point of the insurance pricing cycle toward their favor. This would mean that higher reinsurance rates, a fact that would go a long way in helping the industry recover from a disastrous first quarter.
Henry Keeling, CEO of Guy Carpenter’s International operations, recently attended the European Insurance Forum hosted in Dublin, Ireland. There, he spoke of the catastrophes befalling the reinsurance industry in 2010 and 2011. Keeling notes that at the end of 2010, “the reinsurance market has around $20 billion in excess capacity.” Given the estimated losses in the first quarter of 2011, coming in at around $50 billion, Keeling believes that there is only 6% of excess capacity left in the market.
Furthermore, the occurrence of natural disasters in densely populated areas has put a strain on several insurance companies all over the world. Some have buckled under the pressure, closing their doors for good. This has left a stark few left in an industry that had once been crowded with brokers and agencies. Keeling expects that this will play a role in higher reinsurance rates, as companies have limited competition but still have to recover from losses.
Several CEO’s of major insurance companies who attended the Forum note that higher reinsurance prices would translate into higher commercial insurance prices, which could have a negative impact on the financial state of developing countries.