The combined ratio of U.S. reinsurers deteriorated in 2005 rising by 23 points from the previous year, according to data put out by the Reinsurance Association of America.
The combined ratio of 26 reinsurers for 2005 came in at 129.4 compared with similar group of carriers that reported a combined ratio of 106.2 the previous year.
The 2005 group wrote $25.3 billion of net premium while the 2004 group wrote $28.4 billion.
The sharp spike in the 2005 combined ratio represents not only the total record dollar amount of insured losses, but also their distribution over the year. The ratio reflects the percentage of each premium dollar spent on claims and expenses and represents a loss when it exceeds 100.
After the four relatively small storms in Florida in 2004, there were considerably fewer losses for the reinsurers because of coverage provided by the Florida Catastrophe Fund. Much of the 2005 storm loss was outside of Florida and did not have a state fund for backstop.
William Wilt, property-casualty analyst for Morgan Stanley, said the size and distribution of storms this year will be critical as to how the share prices of reinsurers perform.
"For instance, a $20-to-$30 billion storm season--or two-to-three times recent annual averages--will likely have a far lower impact on the group if that total comes from a series of $5-to-$6 billion storms as opposed to two $10-to-$15 billion events," he wrote.
Mr. Wilt also wrote that changes in primary retentions and other underwriting changes have effectively shifted meaningful amounts of volatility back onto the primary companies.
Mr. Wilt said that not only are property reinsurance prices expected to rise this year, but reinsurers should also benefit from the May release of the Risk Management Solutions new catastrophe model, which should fuel demand and tighten capacity.
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