Bronek Masojada says reinsurance rates will spike, but doubts the increase will last

Hiscox chief executive Bronek Masojada believes reinsurance rates will spike, following a spate of catastrophe losses, but questioned whether the rises were sustainable.

Reinsurers are counting the cost of disasters including the Japanese earthquake and tsunami in March, the New Zealand earthquake in February and January’s heavy flooding in Australia. Lloyd’s faced £2.3bn in claims after these events.

Masojada said mid-term reinsurance renewals would undergo rate rises because of these. “In terms of the 1 June and 1 July renewals, prices in property and casualty are going to rise 10% plus with cumulative losses and the impact of RMS 11.”

But Masojada said reinsurance rates for January 2012 renewals still hung in the balance.

“Looking ahead, rates will become tepid unless there is a $10bn [£6bn] loss or more during the Atlantic hurricane season,” he said. “A $10bn loss is not big, but after you’ve already had $10bn worth of tornado losses it’s all about the cumulative position.”

Panmure Gordon analyst Barrie Cornes said rate rises were likely to hit reinsurers, but skip the primary market. He said: “A lot of the London-based smaller primary insurers are saying, because of their losses in the first quarter, any losses from US windstorms are likely to go straight to reinsurers and miss them out.

“It’s good from their point of view because it won’t affect their net tangible assets. But if it only hits reinsurers, it will take a while before it creates reduced insurer capacity.”

Cornes believes the market can still undergo further catastrophe losses without primary rates moving. He said: “Previously, a $10bn storm would have been the final straw. Now I’m not convinced it’s enough.”

Pass notes: This year's rates

What affected 2011 reinsurance rates?
In January, rates fell 5%-10%. After a string of natural disasters in late December and early 2011, rates rose by up to 50% in loss affected areas. The next renewal periods begin on 1 June, 1 July and 1 January.

What can we expect now?
The Atlantic hurricane season runs from 1 June to 30 November. Twelve to 18 storms are predicted, of which three to six are expected to be major.

How can insurers prepare?
Lloyd's chief executive, Richard Ward has warned insurers to raise premiums or face severe losses in the event of a major event. Following two seasons without a hurricane making landfall, Ward said: "At some point, our luck will run out."