Reinsurers dodge bullet during very active hurricane season

This ‘fortuitous’ outcome is a credit positive for reinsurers as it will support the 2010 underwriting results of firms that have experienced significant losses as a result of catastrophes elsewhere, said Moody’s in its Weekly Credit Outlook. These loses occurred most notably as a result of the earthquakes in Chile and New Zealand and European windstorm Xynthia, it added. But the rating agency remains cautious about the sector given that profit margins are likely to be squeezed as rate decreases affect the top line, investment income drops because of low investment yields and the impact of reserve releases diminishes. According to Swiss Re, preliminary 2010 insured natural catastrophe losses worldwide totalled approximately $31bn, up from $22.3bn in 2009, but largely in line with the average estimated natural catastrophe insured losses of $27.2bn (in 2009 dollars) over the past 20 years. hideClearly the absence of major losses during 2010’s hurricane season prevented above-average losses from being worse. According to Moody’s figures 19 named storms formed in the Atlantic basin this year, tied with 1887 and 1995 as the third highest on record. Twelve of these storms became hurricanes, which means that 2010 ties with 1969 as the second highest on record. Five of those were major hurricanes. The fact that there were no US landfalling hurricanes is unprecedented for a season with at least 10 hurricanes, said Professor Mark Saunders of Tropical Storm Risk (TSR), which predicts and maps tropical storm activity worldwide. Speaking at the Aon Benfield Japan seminar in Tokyo he said that this is the fifth year in a row with no major hurricane strike on the US. The only previous time this has happened was in 1901–1905, he added. Global reinsurers certainly had cause for concern this spring when four research organisations forecast above-average hurricane activity for 2010 and the most active season since 2005, when Hurricanes Katrina, Rita, and Wilma resulted in approximately $60bn in insured losses. These forecasters based their projections for heightened activity on a combination of a dissipating El Niño southern oscillation and record warm tropical sea surface temperatures in the Atlantic Ocean, creating favourable conditions for hurricane formation and intensification. Meteorologists believe that the jet stream’s position over North America this summer contributed to warm and dry conditions along the Eastern seaboard, effectively keeping many storms over open water. In addition, the fact that many of this year’s storms initially formed close to Africa resulted in storm tracks that curved northward before impacting the US mainland. Moody’ said that during its meetings with reinsurance management teams this past September many stated that despite some expected price erosion, underwriting property catastrophe reinsurance still looked attractive going into 2011, particularly in the US. “Given the oversupply imbalance that persists in the industry and the desire by most firms to shift risk portfolios toward shorter-tailed lines, we believe that competition for adequately priced property catastrophe reinsurance business is likely to increase, resulting in pricing trending downward by perhaps as much as 5%–10% next year,” the ratings agency said.

Reinsurers dodge bullet during very active hurricane season

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