The higher rates entering the July 1 policy renewal season likely won't be enough to help reinsurers fully absorb costs from disasters such as Japan's earthquake and tsunami, and the spate of spring tornadoes and floods in the U.S., Bijan Moazami wrote in a note to investors.
"We doubt that price hardening in the property catastrophe market will last long enough for reinsurers to recover the massive losses that they will have to pay for recent events," Moazami wrote.
Further, Moazami said that price increases are likely to be limited to property reinsurance, rather than casualty coverage.
Factors weighing in favor of higher prices include the tens of billions of dollars in insured property losses so far this year, and a new model that Risk Management Solutions Inc. recently adopted for assessing hurricane risks in the U.S.
Moazami cited data from the consulting firm Guy Carpenter & Co. showing that recent catastrophe losses have cut global reinsurers' excess capital levels in half in just six months, declining to $10 billion as of June 1 from $20 billion on Jan. 1.
In addition to the Japanese disaster in March and the more recent U.S. tornadoes and floods, insurers have faced losses this year from a drought in Florida that's blamed for crop damage and wildfires, and fires in Arizona and New Mexico.
And the six-month Atlantic hurricane season just began on June 1. U.S. government forecasters last month predicted three to six major hurricanes from an above-average season, with as many as 18 named tropical storms developing.
The adoption of the new hurricane risk model has complicated comparisons of reinsurance rates from year to year. But Guy Carpenter estimates pricing rose an average 5 percent to 10 percent for policy renewals that took effect June 1.
The new modeling also suggests that primary insurers may need to buy more reinsurance, and underwriting criteria need to be significantly adjusted, Moazami wrote.
In the short-term, Moazami sees "pockets of opportunity" in the reinsurance market, but he's cautious about long-term prospects for reinsurers, citing a competitive threat from alternative sources of reinsurance capacity, such as industry loss warranties and catastrophe bonds