Insurers and reinsurers are facing major changes this year in the catastrophe insurance sector, which will have dramatic implications on those that write business in catastrophe-prone areas, an article in the latest issue of GE Insurance Solutions' trade publication states.
The likely effect of these changes is that insurers and reinsurers will need more capital or will have to reduce their peak-zone exposures, according to the article authored by Jonathan Isherwood, global product strategy leader at GE Insurance Solutions.
Mr Isherwood predicted that return on capital would fall. Furthermore, reinsurers and insurers may have to increase pricing levels for key-zone catastrophe risks in order to obtain similar return on equity that they were able to earn before the changes.
In addition, the GE insurance expert speculated that companies may seek to improve capital efficiency by balancing and/or diversifying their portfolios away from peak-zone capital intense areas, which could cause over-capacity – and competition – in these desired zones.
Monoline catastrophe writers or companies that have a heavy concentration of catastrophe business will be disadvantaged in this new environment, Mr Isherwood concluded.