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Member, Beacon International Group, Ltd.
MONTE CARLO, Monaco—The reinsurance industry likely will post a combined ratio of between 105% and 110% for 2011, according to Standard & Poor's Corp.
Rate increases have been seen on loss-affected lines throughout the year, and rate declines have been arrested in several other areas of business, but this is likely not going to turn the market, according to Dennis Sugrue, a director at S&P in London.
There likely will be rate increases on many catastrophe-affected lines at Jan. 1 renewals, and reinsurers may increase prices to reflect the revisions to Risk Management Solutions Inc.'s U.S. windstorm model and other model changes, but a large amount of capital still in the industry means there likely will not be return to a hard market, he said.
The reinsurance industry had about $40 billion to $45 billion in surplus at the start of this year and, even after the series of large natural catastrophes, about $35 billion in surplus capital remains, said Mr. Sugrue.
If there is a large event that affects reinsurers’ capital position, there is a risk that investors that are unsatisfied with reinsurers’ low stock market valuations may not replenish capital via traditional means, he said. Investors may prefer to use mechanisms such as sidecars to take advantage of any hike in rates because these vehicles tend to offer them a clear exit strategy, he said.