The first three months of 2010 will likely turn out to be the most expensive first quarter in history for natural disaster reinsurance claims, according to global reinsurance broker Willis Re.

In a report entitled "Calm Amid Calamity", released last week, Willis Re CEO Peter Hearn said current estimates for first-quarter losses are in the region of $16 billion.

The report came out the preliminary estimates for first-quarter catastrophe losses announced by global insurers reached as much as $4.7 billion by the end of last week — of which the Bermuda market's share is more than half.

The majority of the losses were attributed to two disasters in late February — the 8.8-magnitude earthquake in central Chile and the windstorm Xynthia, which caused wind damage and flooding in several parts of Western Europe.

Munich Re and Swiss Reinsurance Co., the world's largest reinsurers, top the list with their estimated exposures.

The total cost of the earthquake, the world's fifth-strongest in a century, may be almost $30 billion, President Sebastian Pinera told reporters in March. Insured losses may reach $8 billion, catastrophe modeller Eqecat Inc. said.

But even losses on this scale may not prove sufficient to harden rates in the reinsurance market, Willis Re said.

"While one poor quarter, which is an earnings issue for reinsurers, will not be sufficient to trigger a general market turn on its own, it is likely to stiffen reinsurers' resolve on renewals later in the year as the size of the recent catastrophe losses develop and back-year reserve releases reduce," Mr. Hearn stated in the report.

"This is balanced by the remaining reinsurance capacity oversupply and the continuing difficulties companies face in achieving any top-line growth to offset claims and expense increases.

"Against this backdrop, absent any other major losses, buyers (that) will be renewing loss-free programmes later in the year can continue to budget for stability or modest reductions in their reinsurance costs."

The bad news for reinsurers was that the largest losses had come in smaller markets, where they were less able to generate significant premium volumes, Willis Re said.

"At the same time, losses in the first quarter of the year leave reinsurers exposed to the historically more loss-prone third and fourth quarters," Mr. Hearn added.

"Furthermore, some forecasters are now predicting a more active than usual North Atlantic hurricane season."

Willis Re sees merger and acquisition activity picking up over the next six months, as company's find it difficult to create top-line growth and valuations remain low.

It also raised concerns over reinsurers investment activities and questioned the safety of government bonds.

"With the lessons of the last six months clearly in mind, many companies have aggressively de-risked their investment portfolios," Mr. Hearn said. "The has caused a move towards the perceived security of government debt, which is starting to raise concerns over excessive exposure to sovereign debt at a time when many governments are under increasing fiscal strain."

The full Willis Re report can be accessed online at http://www.willis.com/Documents/Publications/Industries/Reinsurance/Willis_Re_1st_View_April_2010.pdf.