The reinsurers are struggling to deliver decent investment returns along with the insurers to help compensate for the cat losses and everyone agrees that the reserves pot that has recently been used to prop up results through liberal reserve releases has surely run dry by now.

Indeed a growing body of analysis suggests that, if anything, the market must ready itself for reserve additions over the next couple of years as the healthy rates enjoyed in liability lines from 2001 till 2005 are counterbalanced by the soft market since 2005 and recently low interest rates, particularly for those with higher levels of US liability business on their books.

On top of all this, the financial crisis under which the European economy currently labours shows little sign of abating as Europe’s leaders struggle to come up with workable plans to bail out struggling countries such as Greece, Portugal, Spain and Italy that are acceptable to all stakeholders.

The longer that the politicians fail to agree a robust solution to the mess the more likely it becomes that one or more of the struggling nations will default leading to horrific consequences for the European financial system and underlying economies.

The reinsurers and insurers are nowhere near as badly exposed to this mess as the banks of course and the leading reinsurers in particular are bending over backwards to explain how they have limited their exposure to the vulnerable economies and so will not be dragged down along with everyone else. There is little to suggest that they have bent over backwards for no reason.

But few in this market are sufficiently naive to believe that the crisis will not have a negative effect on the balance sheets of even the most expertly risk-managed of reinsurers.

All of this therefore suggests that the reinsurers need to raise their rates to compensate for the real and potential risks posed to their ongoing results and balance sheets.

It would not therefore have come as a great surprise to see the likes of Munich Re, Swiss Re and Hannover Re use the platform provided by the annual Baden Baden meeting to prepare the insurance market for the worst.

But, just as in the sunshine of Monte Carlo six weeks earlier, it did not happen in the fog and drizzle of Baden Baden.

There were no dire warnings of significant rates increases across the board, withdrawal of cover and application of exclusions in the standard lines. It was all a bit cosy and relaxed really.

Buyers of catastrophe reinsurance coverage in regions that have suffered big losses such as Japan, New Zealand and Australia have already suffered big rate increases of course and these will rapidly be passed on to corporate customers as the pressure mounts.

The topic of contingent business interruption (CBI) was again top of the agenda for Munich Re in particular, as it was during the Monte Carlo Rendez-Vous.

It seems that corporate buyers spooked by what happened in Japan cannot expect their main primary insurers to enjoy abundant and ‘reasonably’ priced reinsurance backing in the short term at least. This is likely to have a rapid knock-on effect at the primary level at a time when broad coverage is needed most (see full analysis in the coming November issue of Commercial Risk Europe).

But overall, there is apparently still simply too much capital left for the reinsurers to play with currently, despite the above-mentioned pressures and big hits suffered by a few companies such as Flagstone Re, and the European market at least remains as competitive.

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