Reinsurance industry sees excess capital halved at June 1 renewals

The reinsurance industry entered hurricane season on June 1 with approximately $10 billion in excess capital, half of the excess capacity that was available on Jan. 1, 2011 renewals, reported Guy Carpenter. Large loss activity coupled with the revision of two major catastrophe models has produced volatile pricing trends at June 1, 2011 renewals, Guy Carpenter said in its recent Capital Ideas.The $10 billion in excess capacity is despite insured losses of $100 million that culminated over the past 16 months. To date in 2011, the reinsurance sector losses have already more than doubled resinurers’ natural catastrophe budgets for the year. Nevertheless, despite the difficult start to the year, Guy Carpenter suggests the industry is adequately capitalized heading into hurricane season.”Moreover, we estimate dedicated reinsurance capital currently stands between $165 billion and $175 billion,” Guy Carpenter’s Capital Ideas says.As of Jan. 1, 2011 renewals, dedicated excess capital in the reinsurance market was pegged at roughly $20 billion. Analysts estimated a $50-billion insured loss event would be necessary “to give the sector pause for thought.”So far in 2011, up to $70 billion in large insured loss estimates have occurred. “And accounting for premiums, attritional losses, expenses, investment income and dividends in the reinsurance sector this year, we now estimate that the reinsurance sector’s excess capital position has roughly halved,” the report says.”This is still a significant excess capital position and must be considered within the broader context of overall dedicated reinsurance capital totalling $165 billion to $175 billion.”Although the market is adequately capitalized, recent events have given way to volatile pricing trends at June 1, 2011 renewals, Guy Carpenter continued. Guy Carpenter points to Florida program renewals and observes the range of quotes provided has increased five-fold versus the past two years – from 15% below the average to up to 16% above the average. “This quoting volatility does not specifically indicate increasing or decreasing pricing,” Guy Carpenter observes. “It simply illustrates how far from the average many individual reinsurers were, highlighting the divergent views regarding the calculation of an adequate price.”