Q1 Cats Likely to Have Reinsurance Earnings Impact

In addition to having the potential to send some reinsurers into the red for the quarter, Moody's believes that the size of the cat losses from the two events, as well as the uncertainty surrounding initial loss estimates, will prompt the industry to "take a hard look" at the share repurchase plans that have been announced, as the preservation of capital will become a priority. This situation will be exacerbated by the fact that we're still two and a half months from hurricane season, with wind severity estimates for the Gulf of Mexico still uncertain.

For the primary insurance market, loss estimates range from $4 billion to $10 billion for the earthquake and $2 billion to $4 billion for Xynthia, according to Moody's. Yet, the company observes that "much uncertainty remains surrounding these loss estimates, as we believe that most reinsurers are making educated guesses based on market share percentages of possible industry-wide insured losses."

Put simply, if the wind blows this summer, a tough quarter could give way to a severe year for reinsurance stocks. The breathing room they enjoyed in 2009, a necessary respite following the late 2008 carnage, didn't stick around nearly as long as one would have hoped.