Best, S&P Positive on Reinsurers’ Capital

By | September 12, 2011

As the Reinsurance Rendezvous in Monaco enters its second day, it has become apparent that most of the world’s global reinsurers are more than adequately capitalized.

In conferences held on September 11 both A.M. Best and Standard & Poor’s described the estimated $70 billion in insured losses in the first half of 2011 as “earnings events,” not capital events;” i.e. despite the losses the reinsurers remain well capitalized.

John Andre; Best’s Group vice president for property/casualty ratings, explained that the large catastrophe events in the first quarter – the New Zealand earth quake and the earthquake and tsunami in Japan, despite causing major losses, “have been largely earnings events to global reinsurers.” He added that as a result, Best contemplates “little or no ratings changes.”

In its briefing S&P said “extremely strong capitalization and strong enterprise risk management capabilities enabled the reinsurance industry as a whole to withstand the large catastrophe losses in the first half of 2011.” S&P also said it is “maintaining its stable outlook on the global reinsurance industry.”

In a way the reinsurers have become victims of their own success. Adherence to underwriting discipline and a greater emphasis on managing the risks they take on has led to, if anything, an excess of capital. Andre pointed out that Best’s BCAR (capital adequacy ratio) calculations show that most reinsurers are “over 200,” whereas a ratio of between 160 to 170 is the usual standard for an ‘A’ rating.

As the world continues to suffer through an economic crisis, especially in Europe and the U.S., where the biggest demand for reinsurance comes from, rates remain at a constant, or in some cases even a declining, level. Only in those areas hit by the catastrophes has demand, and consequently prices increased.

Increases haven’t happened across the board, and, unless there’s another cat loss the size of Katrina, they probably won’t. Is this a “sea change” in the nature of the reinsurance market? Perhaps – see following article.

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