3 December 2013 News

Lack of hurricanes in 2013 will lower reinsurance prices

The quietest US Atlantic hurricane season in decades will lead to a low double-digit fall in related catastrophe reinsurance pricing in the key 2014 renewals, says Fitch Ratings.

According to the rating agency, industry earnings in 2013 will be boosted by lower catastrophe payouts, but much of the extra profit is likely to be returned to investors through dividends and share buybacks, rather than being used to further bolster capital.

The Atlantic hurricane season ended on November 30 without the formation of a single major hurricane and with the fewest named hurricanes since 1982.

“This will maintain the pressure on US excess of loss catastrophe pricing, which has already weakened in part due to surplus capacity from the growth of catastrophe bonds and other reinsurance alternatives,” says Fitch.

“A low double-digit price drop in the January renewal would be in line with the declines reported at the mid-year 2013 renewals. We also expect to see more favourable terms and conditions for reinsurance buyers, including larger limits, multi-year agreements and better terms on the reinstatement of cover.”

Other regions have been hit harder by natural catastrophes in 2013, including wind storms and flooding in Europe, Canada and Australia.

Fitch predicts that prices in affected reinsurance lines are likely to rise, while in unaffected international catastrophe reinsurance lines these losses should limit price softening to a single-digit drop.

“We expect reinsurers to maintain underwriting discipline in 2014 and not look to increase capacity much further on catastrophe exposed programmes either in the US or internationally,” says Fitch.

“Lower catastrophe losses will result in improved operating results in 2013 for most reinsurers. However, capital levels are already strong and limited demand means there are likely to be few opportunities to use new capital to generate additional business. This means reinsurers are likely to increase the amount of capital they return to shareholders in the near term.”

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