With primary companies eagerly awaiting the Jan. 1 renewal season, one factor that might keep pricing down is the influx of new capital into the reinsurance market, according to an analyst.
Bear Stearns property-casualty insurance analyst David Small said recently in a note to investors that more than $7.5 billion in capital is expected to flow into the market in the aftermath of Hurricane Katrina.
Last week Chubb Corp., Warren, N.J., announced it was investing into a new Bermuda entity that was expected to have an initial capital base of $1.5 billion. Harbor Point, as the company will be called, is the first new reinsurance entity established in the aftermath of Katrina.
"This will gain Chubb additional exposure to the reinsurance market without exposing its own balance sheet," Mr. Small said.
Most of the new capital has come in from established companies conducting new equity offerings in the aftermath of the '05 storms.
The companies raising capital have primarily been Bermuda entities. For example, Montpelier Re raised $600 million and Platinum Re has either raised or has the right to raise almost a billion dollars.
Axis Capital, formed in the aftermath of Sept. 11, is reported to have raised or have plans to raise nearly $1.75 billion.
The $7.5 billion raised so far in Bermuda in the aftermath of Katrina pales in comparison with the amount raised there after the Sept.11, 2001 terrorist losses--$14 billion.
What is undetermined is the affect, if any, that this new capital will have on secondary pricing, which has shown signs of firming after the storms. "New capital may prevent tightening of underwriting standards that some insurance and reinsurance company managements have been anticipating," Mr. Small said.
Bermuda companies such as XL have been particularly hard hit by Katrina losses. The company recently announced that it sustained $1.47 billion in storm losses, representing about 18 percent of company equity.
"We have greater conviction that XL will need to raise equity in order to maintain its rating and capitalize on pricing increases in marine and energy, a line that historically has been one of strength for the company," Mr. Small said.
Overall, in Bermuda more capital is expected to flow in than will have gone off the island, which should put some constraints in expected secondary price hikes in the property catastrophe lines, Mr. Small said.
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