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Swiss Re Sees Catastrophe Reinsurance Prices Stabilize

Swiss Re Ltd. (SREN), the world’s No. 2 reinsurer, said it expects the price of natural-catastrophe reinsurance to stabilize in 2014 after a drop this year.

Demand for reinsurance coverage will double in “high growth markets” and increase about 50 percent in so-called mature markets by 2020, the Zurich-based reinsurer said in an e-mailed statement today, without elaborating.

Reinsurers such as Swiss Re, Munich Re, and Hannover Re are meeting with brokers and their clients, primary insurers, in Monte Carlo to negotiate terms and conditions of next year’s property and casualty policies. The industry is under pressure to shore up earnings hurt by low interest rates and as near-record capital available for coverage weighs on prices.

“Although prices for natural catastrophe covers are expected to decrease in the short term, Swiss Re expects them to stabilize in 2014,” the company said. “The U.S. liability insurance market is hardening while it expects prices to remain stable for other property and casualty segments.”

Munich Re (MUV2), the world’s largest reinsurer, said yesterday it sees stable rates for its property and casualty reinsurance at January price negotiations, partly “due to the still comparatively low interest rates” for proportional business, where claims and premiums are shared with a primary insurer. The Munich-based company “predicts no significant changes in prices and conditions” in other business, it said.

‘Threat’

Executives from Allianz Re, the reinsurance arm of Germany’s Allianz SE (ALV), and the international reinsurance business of Berkshire Hathaway Inc. (BRK/A) said earlier this month they expect prices to be unchanged or fall next year. Terms and conditions of the contracts might also see some deterioration, they said.

The increased sales of insurance-linked securities, or ILS, such as catastrophe bonds, which allow reinsurers to tap interest or principal payments when losses from specific events surpass an agreed-upon threshold, “poses a threat to less diversified and smaller reinsurers,” according to Swiss Re.

“Amid the continued low yield environment, alternative capital continues to enter the reinsurance market in search of attractive investment opportunities,” Swiss Re said. Seventy percent “of this capital focuses on U.S. natural catastrophe risks while other business lines are less affected.”

The company said the amount of alternative capital currently stands at about $40 billion.

Munich Re, Swiss Re and Hannover Re (HNR1) are among reinsurers typically renewing about two-thirds of their annual property and casualty contracts in January. Munich Re said on Aug. 6 prices declined 0.9 percent in July renewals, while Swiss Re reported a drop of 5 percent.

To contact the reporter on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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