Windstorm losses will enforce reinsurer discipline: Benfield

In an analysis of the impact of the 2004 Atlantic hurricane season, broker Benfield Group says significant catastrophe losses this year should help enforce pricing discipline as the latest renewal period looms.
Benfield notes that comments from reinsurer CEOs indicate an optimism about pricing discipline, specifically in the property catastrophe line, holding tight as a result of the high losses sustained from Hurricanes Charley, Frances, Ivan and Jeanne hitting the U.S. this fall.
“Even for those cedants unaffected by the hurricanes, the spate of losses is likely to encourage a review of exposures which in turn is likely to lead to an increased demand for reinsurance,” the report notes.
For those insurers impacted by hurricane losses, while the hit to earnings will be immediate, there may be longer-term implications as well. “Attachment points of reinsurance contracts are likely to be the focus of particular attention, given the relatively low level but repeat nature of the 2004 hurricane losses, and deductible levels of excess of loss contracts are likely to be reassessed,” Benfield predicts.
The broker also predicts that despite some shortcomings in risk modeling revealed by the storms, reliance on modeling will continue to increase.
Pricing in high-risk zones will likely stabilize or increase, and retrocessional costs will likely increase as well, with increased demand for retro cover expected specifically for the “new reinsurers” formed after 9/11.
“It appears unlikely that there will be a substantial inflow of new capital into traditional reinsurance vehicles, although the trend for increased activity in reinsurance risk transfer by specialist hedge funds is expected to continue,” Benfield concludes.