CAT reinsurance premiums set to rise in Jan renewals

The flooding in Thailand may lead major global reinsurance firms to raise catastrophe premiums across the world to try to absorb the steep losses from natural disasters in the Asia Pacific region, Fitch Ratings says in a new report.

The ratings firm suggests some reinsurance firms have already used up their catastrophe budgets for the year following the earthquake and tsunami in Japan and the earthquake in New Zealand. As a result, the losses from the Thai floods will directly affect their bottom lines, Fitch says, but adds that it does not expect the losses to result in downgrades for global reinsurers.

“The additional burden of the Thai floods may lead reinsurers to try and recover their losses through a broader increase in catastrophe reinsurance premiums during the important January renewal season,” says Fitch.

The credit rating agency adds that price increases thus far have been mainly focused on the countries that have been affected by natural disasters, noting US casualty prices remained flat in the June and July renewal seasons, while New Zealand prices doubled and Japanese rates increased by 30% to 70%

Last week, Munich Re, the world’s biggest reinsurer, said that its own losses from the Thai floods would be around EUR 500 million (US$ 670 million) before taxes while Swiss Re places its own costs from the disaster at S$ 600 million. The Swiss global reinsurer has estimated that the total insured market loss from the catastrophe would be US$ 8-11 billion dollars while Aon Benfield said that insured losses might exceed US$ 10 billion. Thailand’s Office of Insurance Commission gave an initial insured loss estimate of US$ 7.2 billion, excluding business disruption claims.