The reinsurer capital return train could halt in its tracks following the impacts of the 2017 hurricane season, according to analysts at Morgan Stanley.
Following the insurance and reinsurance industry loss estimate of hurricane Maria losses from AIR Worldwide, which at up to $85 billion is considerably higher than anyone had expected, the analysts say that the combined losses of the 2017 season could mean that reinsurers stop any capital returns above their base dividend payouts.
The analysts at Morgan Stanley estimate 2017 catastrophe insured losses at a minimum of $106 billion to as much as $187 billion, including the hurricane and earthquake activity in recent weeks.
As a result they expect to see some reinsurance price increases, but question how widespread these price rises will be. But they do think the erosion of industry capital is now set to be sufficient to force reinsurers to stop returning as much of their capital.
“We believe base dividends will continue to be solid but now see additional capital return beyond base dividends potentially halted,” the analysts wrote this morning
There are many factors that could affect pricing, from the ultimate size of the losses, how quickly they can be paid, alternative capital lock-up, as well as the need for backup and additional reinsurance coverage and the amount of capital on the sidelines.
But none of that will affect reinsurers ability to return capital and the analysts clearly believe that the industry is now set to suffer an aggregated volume of losses high enough such that not every reinsurer will be able to continue to return capital to their shareholders.