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Reinsurance broker says industry capacity has held up well through expensive year for claims

The tens of billions of dollars reinsurers have paid out in claims this year have barely diminished the industry’s capacity, according to a leading broker.

David Flandro, global head of business intelligence for reinsurance broker Guy Carpenter & Co, told BestWire that the year should finish “near where it began” in terms of capacity, a “remarkable” achievement.

“We did notice that reinsurance capacity utilisation rates increased at mid-year renewals, up to about 94 percent in June 2011 from 78 percent in the first quarter of 2010, and we expect this level of utilisation to persist,” he said.

In a year that has included an earthquake in New Zealand, a tsunami of historic proportions in Japan, a devastating tornado season in the US, wildfires in Texas, flooding in the electronics manufacturing hotbed of Thailand and Hurricane Irene, Bermuda reinsurers have paid out billions of dollars.

A significant erosion of capacity would put upward pressure on reinsurance rates.

Ratings agency AM Best Co said in its annual reinsurance market review that “capacity has been dampened” this year, bringing on hopes of a harder market in the busy January renewal season.

Estimated catastrophe losses of as high as $60 billion for the first half of 2011 “have diminished last January’s robust capital position,” according to the report. “Companies are hoping for, but not betting on, a more dramatic improvement in property cat pricing at the January 2012 renewal.”

Mr Flandro said he had not seen changes in buying behaviour due to changes in capital positions, even though some primary insurers had been impacted through exposure to European sovereign debt.

“Still, it is our experience that most carriers’ solvency ratios and capital positions remain well in excess of required capital levels and most reinsurers maintain more than enough capital to operate as before,” he said. “Capital growth has of course, been moderated by all of the events of this year, but in aggregate, capital positions remain sufficient both on the insurance and reinsurance sides.”

Active catastrophe year: The scene in Joplin, Missouri, after a tornado ripped through the town in April

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Published November 30, 2011 at 1:00 am (Updated November 30, 2011 at 8:15 am)

Reinsurance broker says industry capacity has held up well through expensive year for claims

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