Willis Re says 2011 disasters so far could subdue M&A and buy-backs

The losses suffered to date in 2011 have largely exhausted reinsurance companies’ annual catastrophe loss budgets, according to reinsurance broker Willis Re.

In a report on the 1 April Japanese catastrophe renewals, the broker said that in response, reinsurers are now trying top manage their underwriting results for the remainder of 2011 by applying rate increases where there has been loss activity and by tightly controlling their capacity deployment.

Willis Re said that the industry globally has been hit by approximately $60bn of insured losses in the 13 months to March 2011, of which an estimated $35bn-$42bn has been passed to reinsurers.

While reinsurers have been able to absorb these losses as a result of their strong capital position and financial strength remains unimpaired, the broker warned that reinsurers’ financial flexibility could be impacted, resulting in less M&A and reduced share-buy backs and other excess capital management techniques.

Willis Re found that while there have been rate increases on natural catastrophe excess of loss of between 5% and 50%, the Japan and New Zealand earthquakes are not by themselves sufficient to drive up market-wide pricing.

The broker added, however, that a hard market could be triggered by another event, such as another catastrophe, inflation, reserve strengthening or wider financial issues.

“While the financial strength of the reinsurance industry remains remarkably intact in the wake of Tohoku, it can only withstand so many blows,” said Willis Re chairman Peter Hearn in a statement. “The reinsurance industry is on the cusp of change and a hard market may be only one more major event away. It could be something as dramatic as a catastrophic hurricane during the upcoming North Atlantic and European winter windstorm seasons or something more systemic like creeping inflation, but whatever the cause, reinsurers have proven their resilience and are gearing up for a bumpy ride over the remaining months of 2011.”