There has been quite a bit of speculation on the impact of Katrina and other 2005 catastrophes on insurance and reinsurance pricing and capacity. Benfield recently completed a research study on the impact of the 2005 cats and concluded that they have had an impact, but not as great as some initially speculated. The study reached the following conclusions:
Hurricane Katrina’s impact on the reinsurance market seems to have fallen short of initial expectations that it would be a market changing event
Catastrophe losses in 2005 had an uneven impact on pricing at the 2006 renewal
Even in loss-affected areas, reinsurance capacity appeared adequate to satisfy demand
Elsewhere, it had a generally stabilising influence, arresting and reversing the downward trend in prices. The US Casualty market was little affected by the hurricanes.
The high speed pipeline between reinsurance and the capital markets established post-9/11 again demonstrated its efficiency in delivering more than USD20bn in new and recharge capital.
A key perspective from the study:
It could therefore be argued that the record catastrophe losses in 2005 will merely serve to save the industry from itself, albeit temporarily, by halting an accelerating slide into soft market conditions. However, in Benfield’s view, the full impact of KRW, like that of previous major losses, will take considerably longer to emerge.
The entire study can be found here, and is worth a read.
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