As a result, the ability for the reinsurance industry to raise new capital, following a major catastrophic event, has been sorely compromised, explained Montross.
After the devastating hurricane season of 2005, many Bermuda-based reinsurers lost an average of 25% to 30% of capital, said Montross. “Most of that was re-generated within weeks of the events.” What concerns Montross is “That post-event capital raising is very unlikely in today’s marketplace.”
An innovative and responsive industry, many reinsurers have developed other methods of attracting capital. For example, sidecars “have become a very efficient way for capital to come in on a very short duration basis, without having to build up an infrastructure,” Montross said.
“Certainly securitization is a form of capital entering the industry, and to the extent that demand is there, I believe we will see an increase in securitization as well.”
Fellow panel member John Berger, president and CEO of Harbor Point Re, added that while it appears that the liquidity crisis of 2008 has eased in 2009, the market is still very precarious.
“I’m very uncertain that if big cats had happened last year when there was a liquidity crisis around the world there would have been anyone that would have come in,” Berger said.
“This year it seems that things have freed up a bit, but I don’t think we are out of the woods on the financial front.”
Originally published on CITopBroker.com on October 2, 2009