Willis Re, the reinsurance division of Willis Group Holdings (NYSE: WSH), has released their stimulating report “Shaken and Stirring”. Stirring is an understatement. The report shows that with the devastation in Japan, New Zealand, Chile and the Australian floods is still not enough to bring a hard market into play.
The report finds that there has been rate increases on Natural Catastrophe Excess of Loss of between 5 and 50 %, but the recent massive earthquakes in Japan and New Zealand’s South Island are not significant to push market-wide pricing up.
Analysts at Willis Re state that for the market to turn hard there would have to be an additional spark to fuel a somewhat smoldering situation. This could be anything from poor investment choices, inflation or worse, another major natural catastrophe.
The report also finds that in a 13 month period to March 2011, catastrophe losses summed to nearly $60 billion globally. Primary insurers have passed $35 to $42 billion back to reinsures. They have been in excellent financial shape due to sharp underwriting in 2009 and outperforming investment choices for both 2009 and 2010.
The downside to this financial strength is that it could negatively impact the activity of mergers and acquisitions, buy back of shares could become less attractive and an increase of capital management could be seen. The challenges for the reinsures are immediate and real. Most budgets are largely exhausted for the year, which puts the underwriting for the duration of 2011 proactively managed.
The reinsurance industry remains intact at the moment; but the industry is on the brink right now, and it may be just one more catastrophic event away from the tipping point. Unfortunately, Accuweather.com released their 2011 Atlantic hurricane predictions on Thursday and it was not a sunny outlook. They are predicting an above average season with the Gulf of Mexico being a large target. The reinsurers will be watching this closely. It could be a rollercoaster ride the rest of 2011.