Hoping for disaster (but not too much!)

NOAA

The world’s biggest reinsurance companies are gathering this week in Monte Carlo for Les Rendezvous de Septembre, the annual meeting where they discuss prices with their clients, insurance companies seeking to hedge against major losses.

You might think that, with all the recent storm activity in the Gulf of Mexico, reinsurers would be crossing their fingers like all the rest of us, hoping that the rest of the season will pass with minimal property damage.

But you’d be wrong. As one knowledgeable source explained to me when I was reporting on catastrophe bonds for the current issue of FP, reinsurers like it when storms cause enough damage to keep rates high, but aren’t big enough to put them on the hook for hefty payouts. That’s the sweet spot.

A little-noticed item in Monday’s Financial Times catches one such reinsurer in a moment of frankness:

It would take $50bn-$100bn of insured catastrophe losses to stem the slide in prices in many areas of the insurance and reinsurance markets, Willis, the broker, has warned.

Without heavy catastrophe losses, it could be the end of 2009 or into 2010 before the markets stabilised, said Joe Plumeri, chairman and the chief executive.

In other words, Plumeri wants to see at least $50 billion in storm-related damages this year. Reinsurance is an important business and I’m glad it’s there, but you have to admit that the incentives can be a little disconcerting sometimes.