In light of this situation, the reinsurers manoeuvre margin remains quite limited. Because of competition, they cannot immediately proceed to the increase of their tariffs and take advantage of the price boom of some direct risks.
On the mid-term basis, the situation is even more complex because evolutions are not solely about climate change. The economic environment with the growing insured values in some countries like China, the governments' requirements in terms of environmental protection or the entry into effect of Solvency 2 have changed the situation in many fields. The reinsurance capacity is, then, likely to be insufficient and exert tension over prices.
In order to meet this demand, reinsurers will have to make more and more recourse to the financial markets in order to reduce their exposure. Recourse to Cat's bonds and other by-products will ease the market of traditional reinsurance. Ceding companies will be more cautious as regards the financial soundness of their reinsurers who may be confronted with the difficulty of recapitalization in the event of a major catastrophe.
When will reinsurers, all reinsurers, undergo the crash tests?