LONDON Jan 2 The entry of new investors like
hedge funds into the reinsurance market is likely to keep prices
mostly flat when European customers renew policies in January,
despite the industry's losses from superstorm Sandy, broker
Willis Re said.
The U.S. reinsurance broker said on Wednesday the industry,
which takes on risk from insurers, would suffer up to $25
billion in losses from superstorm Sandy and that would ensure
prices for property reinsurance stabilise after years of falls.
A surge in claims typically supports reinsurance prices by
forcing less well-capitalised players to retrench, freeing those
still in the market to charge more.
But an influx of fresh capital from new entrants into the
industry, like hedge funds, would offset this, Willis Re said.
Last year saw a spate of increased interest from hedge funds
in the reinsurance sector which, apart from superstorm Sandy,
had a relatively quiet year in terms of costly catastrophes.
These included big-name hedge fund managers like Dan Loeb, Steve
Cohen and John Paulson.
HUGE MARINE LOSSES
Reinsurers writing marine coverage were hardest hit by
Sandy, as the storm which ravaged the U.S. east coast in October
damaged yachts, pleasure crafts, cargo and imported cars.
While prices for marine insurance are likely to increase by
up to 10-15 percent, there "are no signs of attempts at blanket
rate increases," across all reinsurance lines, Willis Re said.
Price changes are likely to remain muted until the industry
suffers a huge loss which fundamentally challenges its
perception of risk, say brokers and reinsurers.
Willis Re said the $20-$25 billion insured loss estimates
for Sandy are expected to change due to uncertainty from the
modeling companies which determine the scale of losses that
insurers and reinsurers are exposed to after a natural disaster.
This uncertainty could take years to decipher and the result
could be different from insurers own assumptions on the damage.
"Superstorm Sandy has yet again demonstrated the danger of
overreliance on catastrophe models," Willis Re said.
Between the losses to private insurers and to the federal
government, Sandy is expected to be the second costliest natural
catastrophe in U.S. history, behind only hurricane Katrina.