Large catastrophe could deplete global reinsurance capacity, says Fitch

by Artemis on September 3, 2009

Fitch Ratings has released their latest report titled ‘2009-2010 Global Reinsurance Review and Outlook’ yesterday. In it they discuss the current global reinsurance market conditions and how the current economic climate could impact them.

Fitch express concern that reinsurers access to capital may be severely restricted by the current financial climate and say that if they suffer any large scale catastrophe losses they may find it difficult to replenish their capital reserves. They say that there is an increased likelihood that reinsurers may have to operate with weakened capital bases for a prolonged amount of time. In their opinion this represents a heightened vulnerability for the reinsurance sector and as such they give the sector a negative rating.

If new capital is difficult to come across what will that mean for the insurance-linked security and catastrophe bond markets? So far this year the market has seemed healthy, with brisk issuance of cat bonds and plenty of investor interest to date. Fitch says that those with a longer history of accessing the capital markets are more likely to be able to continue to do so, that could make the market harder to access for new entrants. That would be a shame as right now the ILS market seems to be at a tipping point which is resulting in innovative methods to secure deals, that innovation needs to continue and it’s often new entrants to markets who innovate hardest. However, if capital itself is difficult to come across within the capital markets right now and yet we’ve had fairly brisk issuance of catastrophe bonds could this mean that the market is less affected due to the non-correlation factor?

You can get access to the full report by signing up for a free account on the Fitch Ratings website.

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