Reinsurance industry’s future is stormy, may be at risk in the event of a major natural disaster

Insurance Industry NewsThe global reinsurance industry is under enormous pressure to quickly recover from the calamitous events that happened all over the world earlier in the year. Natural catastrophes have taken a massive toll on insurance companies worldwide, and as these companies hemorrhage money, so too do reinsurers as they pour funds into these companies to keep them afloat.

While the severity of disasters occurring earlier in the year has not been overtly cataclysmic, the frequency in which they occurred has put strain on a somewhat unstable global economy. Now, insurance and catastrophe management experts are saying that the reinsurance industry can ill afford one more natural disaster.

Worldwide insurance brokerage Guy Carpenter says that the reinsurance industry has already seen losses double than what it had estimated for the whole year. To date, the total cost of the most devastating disasters occurring this year amount to $464 billion. The largest reinsurance companies, such as Munich Re and Swiss Re, have enough capital to cope with these massive losses, but only just. Hurricane season is here and it is threatening to take what cushion reinsurers have left away.

In the past several years, the most costly natural disasters to strike the U.S. have been hurricanes. Many risk modeling firms believes that the nation is long overdue for another major hurricane to make landfall. James Elsner, director of the Hurricane Climate Lab at the Florida State University, says that, due to current climate conditions, any hurricane coming ashore is likely to be powerful. A major hurricane could potentially cause more than $20 billion in insured losses.

The reinsurance industry may be on the verge of a significant capital depletion event from which it will be difficult to recover.

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