The global insurance industry is ill-positioned to withstand a major catastrophe, a new report from New York-based Moody's Investors Service contends.

The report, "Reinsurers Enter Hurricane Season Trading Below Book: Will Investors Be There to Recapitalize?" says the historically low price-to-book ratios are raising doubts about reinsurers' ability to bounce back if faced with major catastrophe losses.

"The past 18 months have been highly unusual if not unprecedented for reinsurance stocks, as nearly all reinsurers continue to trade below book value," says Kevin Lee, a senior credit officer at Moody's. "On average the sector is currently trading at 0.8 times book, worse than other insurance sectors and global financials."

The report observes that reinsurers are employing different strategies to counter the low
price-to-book ratios, including buying back shares, merging or listing shares on foreign exchanges in the hope of diversifying the investor base over the long term.

"A bigger issue still is that the industry's investor base is very concentrated," adds Lee, noting that the top 20 shareholders often make up anywhere from 50% to 75% of total shares outstanding.

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