Euro crisis to top reinsurers’ worry list-Aon

Monday, 9 January 2012 00:00 - - {{hitsCtrl.values.hits}}

LONDON (Reuters): The eurozone debt crisis is likely to replace soaring natural catastrophe claims as the insurance industry’s biggest worry this year, potentially fuelling increased demand for reinsurance cover, reinsurance broker Aon Benfield said.

“If last year was the year of cat losses, this is the year that the debt crisis might be at the forefront,” Mike Van Slooten, head of Aon Benfield’s international market analysis team, told reporters last week.

Worries over investment losses as a result of the credit crisis could induce primary insurers to buy more reinsurance to bolster their protection against further catastrophe claims.

The euro crisis, which has pushed up borrowing costs for critically-indebted eurozone nations and forced three of them to accept bailouts, is supporting demand for reinsurance “a little,” Aon Benfield co-chief executive Dominic Christian said.

Reinsurance demand overall is stable to weak, held back by primary insurers’ persistently high capital reserves, while its supply is high, Aon Benfield said in a report timed to coincide with the key January policy renewals season.

Aon Benfield did not comment on whether reinsurance prices would rise or fall as customers roll over their policies.

Other commentators have said price increases will likely be restricted to catastrophe-related business following a near-record spate of disasters last year, with the rest of the market remaining broadly flat.

Last March’s Japanese earthquake and tsunami pushed total catastrophe-related insured losses to $108 billion in 2011, making it the industry’s second most-costly natural disaster year after 2005, when Hurricane Katrina devastated New Orleans, according to reinsurer Swiss Re.

Rival broker Willis Re last week said the eurozone debt crisis offers the best hope of an across-the-board rise in reinsurance premiums because it could drain the industry of a persistent capital surplus that has fuelled price-sapping competition.

Aon Benfield’s Van Slooten said primary insurers were attempting to gauge which reinsurers would be most vulnerable to a deterioration in the euro crisis as part of their reinsurance purchasing strategy.

“They want to have a sense of where the shoe might drop were things to get very much worse than they are,” he said.

Analysts have said reinsurers have little direct exposure to the euro crisis thanks to their minimal holdings of distressed sovereign debt, but would still be vulnerable if the situation deteriorated, in part because of their links to the banking industry.