As the claims for the damage caused by hurricanes Katrina and Rita become clearer, the next few weeks are likely to be very rough for reinsurers with exposures to natural catastrophes. The likely flow-on impacts on global insurance premiums are still difficult to assess, although most industry observers say rates must rise as treaties are renegotiated over the next six months.

Major New York-based capital manager Keith Trauner was quoted yesterday in US media reports as predicting “very significantly higher” insurance premiums. He says there will also be “higher deductibles and tighter terms and conditions as a result of Katrina”.

“For the next year or two, underwriting results, [except if there is] another large catastrophe, should be very, very strong.”

Munich Re is one of the first reinsurers to feel the sting of a ratings fall, with AM Best cutting to AA-minus from AA.

The German giant said on September 28 that its exposure to the hurricanes is only $US780 million ($1.06 billion), but AM Best says Munich Re has “reduced risk-adjusted capitalisation”. And while it has an “excellent business position” in reinsurance, its future earnings may be “more volatile due to its high exposure to natural catastrophes.

Swiss Re says it faces $US750 million ($1 billion) in hurricane-related claims, a figure that has prompted Swiss investment specialist Helvea to question its strategies. “While it is the role of a reinsurer to take on risks, we do question whether the group has made the correct decisions about the exposures it has run in this area.”

AM Best has downgraded a number of reinsurers, while Standard & Poor’s is being more upbeat about reinsurers’ ability to handle the claims.