Wider effects of re-calibrated Cat models

Following Mother Nature’s rather ruthless toying with us last year, many carriers in the property field (and especially those with Gulf of Mexico exposures) have expressed a certain, er, lack of faith in their existing Cat models. Recalibrations are due out next month and it seems probable that this will have capital ramifications and thus constrain capacity yet further in that retro market, already squeezed by withdrawals from the market both voluntary and involuntary (through ratings downgrade and thus relegation to ‘unacceptable security’ status).

So it may well follow that carriers, faced with steep rate hikes, will seek to diversify their business into areas such as K&R, surety, trade credit and political risk, terrorism. And of course that will have a knock-on reduction on pricing in those areas.