Tuesday, June 22, 2010

"ANALYSIS - Insurers revive catastrophe bond market" and "Reinsurance prices still in doldrums-industry execs" (AIZ; BRK.B)

Pricing and laying off risk have been a couple themes we've been following in the property/casualty and reinsurance business. As always we use Berkshire as a proxy for the group.
Two from Reuters:

Insurers are issuing catastrophe bonds again to complement traditional and cheaper reinsurance and to spread the risks in buying protection against events that could cost them tens of billions of dollars in claims.
The nascent cat bond market froze for several months after the late 2008 collapse of investment bank Lehman Brothers, which had played a counterparty role in several of the early bonds.
But already this year 12 new cat bonds have been issued, transferring risks associated with natural disasters to capital market investors rather than traditional reinsurers.

A hurricane or earthquake can wipe out profits across the traditional insurance and reinsurance market, often driving up prices for cover and limiting the amount available for insuring against certain perils. Hurricane Katrina, the industry's most costly natural disaster, cost $40 billion in claims.

"Cat bonds help to diversify our group protection capacity and supplement traditional reinsurance -- especially for peak risk, such as European wind and U.S. perils like hurricane and quake," said Georg Rindermann, senior project manager at Allianz(ALVG.DE).

Allianz is one of seven primary insurers that have issued cat bonds this year rather than relying solely on the reinsurance industry. The others are USAA, Assurant(AIZ.N), Nationwide MutualNMUIC.UL, State Farm, The Hartford and first time issuer Chartis.

Reinsurance companies, such as Munich Re and Swiss Re, also issue cat bonds to transfer major risks and thus free up capital to underwrite new business. They initially dominated issuance, but this year they have lagged primary insurers, issuing just five cat bonds so far.
Swiss Re issued two of these to cover against extreme mortality, Atlantic hurricane, European windstorm, California and Japan earthquake, while Munich Re issued the other three, against U.S. hurricane and European windstorm....MORE

Reinsurance prices still in doldrums-industry execs
* Q1 quake, storms not enough to reinvigorate market
* Only major natural catastrophe can increase pricing

ZURICH, June 2 (Reuters) - The prices the reinsurance industry can charge primary insurers in premiums to cover their own risks have not increased and are unlikely to do so without a major natural catastrophe, reinsurance executives said.
The reinsurance industry had forecast battered insurers would seek to bolster their capital in the crisis by buying reinsurance cover to pass on insurance risk, boosting demand and prices, but it was unable to hike premiums as it had hoped.

"This industry really has trouble raising rates unless there's some catastrophe," Franklin Montross, Chief Executive of Berkshire Hathaway (BRKa.N) reinsurance unit General Re, told a reinsurance conference in Zurich on Wednesday.
The earthquake in Chile and winter storm Xynthia in Europe earlier this year had not been enough to 'harden', or increase, prices on their own, executives said.

"The high level of natural catastrophe losses in the first quarter is not a market-changing event," said Axis Re (AXS.N) Europe Chief Executive Karl Mayr. "It is a soft market now and is softening."
Reinsurers like Munich Re (MUVGn.DE), Swiss Re (RUKN.VX) and Hannover Re (HNRGn.DE) typically face their biggest payouts in the second and third quarters of the year, when the U.S. hurricane season peaks.
There was already enough capacity in the market to cover clients' needs, Mayr said, adding this was putting pressure on prices....MORE
Previous posts:

Where are the Catastrophe Bond Issuances? (BRK.B; BRK.B)

Insurance: Here Come the Catastrophe Bond Offerings (AIG; BRK.B)

"‘Extremely Active’ Hurricanes Set to Test Cat Bonds" (AIG; GS; BRK.B)

Berkshire Hathaway's "Buffett Picks Insurer Cooperation Over Competition " (BRK-B; BRK-A)
Hurricane Watch: Thinking of Shorting the Property/Casualty Insurance Companies (AIG; ALL; BRK.B; CB; HIG; TRV)

Insurance: Catastrophe! Travelers Reports- '“Weather had a big impact on our results,”' (TRV)

Catastrophe Bonds Year-to-Date and Pipeline (AIG; HIG)
"Buffett: Berkshire Has Some Exposure to Large Natural Disasters" and "Buffett Says He Has 100,000 Shares of Berkshire Rival Munich Re" (BRK.A; BRK.B)
Hurricane Watch: As Insurers Continue to Offload Risk; Coastal Residents Seem Unaware
Another Reinsurer that would Rather Invest Their Surplus than Write Business (RNR) 
"No Surprise: Chile Leads to Reinsurance Rate Increase Debate" BRK-A; BRK-B"':
No kidding.
A brisk breeze gets the boys in Omaha, Zurich, Munich and London (Lloyds) talking about premium increases.
Not to mention the herverzekering crowd in Amsterdam, they're tough bastards....
And way back in March:
Insurance: " Record warmth in Atlantic Main Development Region for hurricanes" (BRK-A; BRK-B)