Capital Shortage Spells Difficult Year Ahead for Reinsurers; Squeezed by Low Interest Rates, Capital Adequacy, Ratings Agencies and Shareholders.Business Editors LONDON--(BUSINESS WIRE)--Jan. 29, 2003 Despite the massive tidal wave tidal wave, term properly applied to the crest of a tide as it moves around the earth. The wavelike upstream rush of water caused by the incoming tide in some locations is known as a tidal bore. of new capital which has flooded into the reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. markets, it's too little too late, says a reinsurance market review prepared by Benfield Group Benfield Group Limited is a reinsurance and risk intermediary based in London, England. It has been listed on the London Stock Exchange since June 2003 and is a constituent of the FTSE 250 Index. , the world's leading independent reinsurance intermediary. `The key issues for the reinsurance industry can be summarized by three Cs: capital, capital and capital," says the report entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: The Big Squeeze. "The influx of new capital after WTC WTC World Trade Center, see there appears increasingly inadequate against the massive outflow caused by falling investment markets, reserve strengthening, and escalating catastrophe losses." Since 2000, the industry has lost some US $200 billion of capital against $26 billion raised in 2001 and $19 billion in 2002. The report notes that reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. balance sheets are being squeezed from all sides. Interest rates remain exceptionally low. Cedants and rating agencies are increasingly focused on capital adequacy. Shareholders, for their part, are demanding improved returns. To generate returns in the current investment climate, reinsurers will have to achieve combined ratios far below historic levels. However, rates are already showing signs of weakening in many market sectors. For the year ahead, Benfield Group predicts: - Many reinsurers will have to continue addressing significant reserving shortfalls, particularly for asbestos. - Equity market weakness will continue to negatively affect balance sheets and constrain the ability of reinsurers to raise additional capital. - Reinsurance recoverables, underwriting exposures to credit risk and the deteriorating corporate default climate, will pose increasing problems for reinsurers. Despite the radical changes in market conditions, the report notes that two aspects of the reinsurance market remain the same: "First, the pricing cycle is alive and well and is already beginning to assert itself. Secondly, imperfect distribution of capital across the industry means that availability of capacity varies widely across the market. However, expectations of a prolonged pro·long tr.v. pro·longed, pro·long·ing, pro·longs 1. To lengthen in duration; protract. 2. To lengthen in extent. hard market are already looking unrealistic." Copies of the report are available by visiting www.benefieldgroup.com. Notes to Editors Benfield Group is the world's leading independent reinsurance intermediary. Headquartered in the UK, it provides a range of specialist reinsurance and risk advisory services advisory services advisory services provided to the public, in their capacity as owners and managers of animals, are an important part of veterinary science. They may be provided by government bureaux, by commercial companies who deal in pharmaceuticals or animals or animal to a global customer base. |
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