Japan earthquake not enough to trigger market turn: Willis Re

Relatively orderly price movements at the Apr. 1, 2011 Japanese reinsurance renewals reveal the Magnitude 9.0 Tohoku earthquake of Mar. 11 is not the catalyst that will bring about a hard market, according to Willis Re, the reinsurance broking arm of Willis Group Holdings (NYSE: WSH).
However, the total tally of first quarter devastation – including the Japan, Chile and New Zealand earthquakes, as well as the Australian floods – have significantly accelerated the likelihood of a market-wide turn should reinsurers be tested again this year, Willis Re says.
Titled ‘Shaken and Stirring,’ the Willis Re 1st View Renewals Report found that while there have been rate increases of between 5% and 50% on natural catastrophe excess of loss lines, the Tohoku and Christchurch earthquakes are not by themselves sufficient to drive up market-wide pricing.
To trigger a hard market, there needs to be an additional accelerant, which could be another major natural catastrophe loss, inflation, the reversal of back-year reserve releases or wider financial issues affecting investment income and balance sheet strength, the reinsurance broker says.
Willis Re notes that of the total 2010 catastrophe losses – approximately $60 billion of insured losses to the global insurance industry in a 13-month period to March 2011 -an estimated range of between $35 billion to $42 billion has been passed from primary insurers to reinsurers.
“Reinsurers have been able to absorb these large losses due to their robust capital position – a product of excellent underwriting results in 2009 and strong investment performances for both 2009 and 2010,” Willis Re noted in a press release.
But while reinsurers’ financial strength may be largely unimpaired, their financial flexibility could be affected, resulting in less M&A, reduced share buy backs and other excess capital management techniques.