Despite $110 billion in industry losses due to catastrophes, global reinsurers have responded without any significant dislocation or squeeze on capacity, according to “Reinsurers Resilient Against Waves Of Catastrophes, Economic Uncertainty,” a report by A.M. Best Co. The many loss events of 2011 nearly equaled the $125 billion losses endured in 2005, when hurricanes Katrina, Rita and Wilma struck.
Further, the report says renewals for January and April were orderly and timely, and that while pricing, terms and conditions improved for property catastrophe covers, the broader market benefited from a stable supply of reinsurance capacity, and pricing generally remained flat.
Facilitating factors include: “lessons learned” from previous years, advances in enterprise risk management (ERM), prudent capital management strategies and advances in catastrophe and economic capital models.
“These tools significantly helped a reinsurer’s ability to better allocate capital within complex risk portfolios,” the report says. “The models, while not perfect, helped keep both individual and cumulative losses in 2011 within stated risk tolerances for most of the global reinsurers.”
Further, companies are reallocating capacity and raising rates in response to events in what were formerly considered non-peak zones, such as Australia, New Zealand and Thailand. Other factors also are contributing to conservative capital management strategies, including simulations of catastrophic losses on capitalization.
The report concludes that considering these strengths, reinsurers can largely be expected to manage obstacles arising from a changing market environment; A.M. Best continues to be concerned, however, that already lower prices could persist or decline further.
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