Some reinsurers in the euro area may need to bolster their capital positions if further catastrophes hit in 2011, according to the European Central Bank (ECB).

In its June 2011 financial stability review, the ECB noted that rating agencies and other participants expect Europe’s insurers and reinsurers to absorb the losses from the Japanese earthquake in March and other catastrophes.

However the bank added that capital reserves at some euro area reinsurers has been significantly reduced and that further losses during the year “could materially impact the solvency” of these firms.

“In particular, large losses would have to be borne if the level of activity during the 2011 Atlantic hurricane season were to be high,” the financial stability review said.

The ECB also pointed out that euro area insurers and reinsurers face the additional challenge of having to absorb the impact of unexpected significant increases in bond yields and dealing with the balance sheet challenges associated with the low interest rate environment.

However, the bank added that the financial condition of euro area insurers is likely to remain broadly stable over the next six to 12 months, and that insurers’ earnings are likely to be supported by improved economic activity in the region as a whole.