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Hedge fund inroads weaken reinsurers’ catastrophe defenses

It wont take another Hurricane Katrina for reinsurers to face losses from covering the cost of storms and earthquakes.

By Oliver Suess, Jan-Henrik Förster | Updated on August 23, 2016
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. (Photo: iStock)

(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.

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