(Bloomberg) -- It won’t take another Hurricane Katrina for reinsurers to face losses from covering the cost of storms and earthquakes. Competitors such as hedge funds have eroded prices so much that a typical year of claims could move the industry into losses.
Property & casualty reinsurance is “getting very close to combined ratios of 100 percent,” Manfred Seitz, managing director of international reinsurance at Warren Buffett’s Berkshire Hathaway Inc., said at a roundtable of industry executives on Monday. “Even if we see normal catastrophe claims in 2016, you could see a number of companies” reach the threshold. A ratio above 100 percent means claims and expenses exceed premium income.
Prices for reinsurance, which primary insurers buy to help them shoulder risks, have fallen in eight of the past 10 years, according to a property-catastrophe index compiled by Guy Carpenter. The industry has been releasing reserves for past claims, which has helped cushion against both the impact of the price declines and falling investment income from ultra-low yields.
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