Reinsurance rates in the Australia-New Zealand market increased between 20-100% in the June renewals, according to a report by risk and reinsurance specialist Guy Carpenter.

Reports by both Guy Carpenter and Willis Re point to a market in transition, as reinsurers start to position themselves for rate hikes.

The Willis Re report, titled Mixed Messages, estimates catastrophes over the past 16 months have cost reinsurers $US48 billion ($44.6 billion) and insurers $US86 billion ($80 billion).

But although it says the catastrophes have cost reinsurers 10% of shareholders’ funds, it notes new capital has entered the industry through fresh equity and independently capitalised insurance vehicles called sidecars. Companies have also scaled down share buybacks.

The report says that any further event that reduces market capitalisation will be the key to a market turn. This could be a major natural catastrophe or a more damaging series of medium-sized cats, as well as a financial downturn or contagion from European debt issues.

Guy Carpenter CEO Global Analytics Bill Kennedy says reinsurers are “carefully evaluating where to deploy their capacity” in a transitional market. He says insurers’ ability to provide detailed reasoning for how they assess their portfolios will be a key factor in the January renewals season.

The company’s Global Head of Business Intelligence, David Flandro, says the reinsurance sector’s capital position for the rest of the year will be heavily influenced by the hurricane season.

Guy Carpenter says the latest catastrophe model released by Risk Management Solutions has impacted reinsurers’ view of risk, but the longer-term implications remain to be seen.

The Willis Re report says reinsurers are contending with changes to some of the widely used nat cat models in the US and forthcoming updates to European models will generate similar issues as buyers try to understand the impact of model changes on their capital management and performance strategies.

Willis Re Chairman Peter Hearn says that given the variations in loss experience, changes in models, exposures and structure change, capacity demand and geographical scope, “it is easy to generalise about rate changes. The reinsurance market as a whole has reacted reasonably logically with a differentiated approach driven on a case-by-case basis.”

He says the reinsurance market remains in a state of uncertainty regarding its short-term future direction, “but what is clear is that any turn in the market pricing cycle is unlikely to follow historic patterns”. 

“More sophisticated capital management techniques and greater transparency over profitable market niches are driving fragmentation of the cycle into territory-and class-specific cycles.”