MUNICH (Bloomberg) — It won’t take another Hurricane Katrina for reinsurers to face losses from covering the cost of storms and earthquakes. Competitors such as hedge funds have eroded prices so much that a typical year of claims could move the industry into losses.

Property and casualty reinsurance is “getting very close to combined ratios of 100 per cent,” Manfred Seitz, managing director of international reinsurance at Warren Buffett’s Berkshire Hathaway Inc, said at a roundtable of industry executives on Monday. “Even if we see normal catastrophe claims in 2016, you could see a number of companies” reach the threshold. A ratio above 100 per cent means claims and expenses exceed premium income.

Prices for reinsurance, which primary insurers buy to help them shoulder risks, have fallen in eight of the past 10 years, according to a property-catastrophe index compiled by Guy Carpenter. The industry has been releasing reserves for past claims, which has helped cushion against both the impact of the price declines and falling investment income from ultra-low yields.

“What we’ve experienced is kind of the opposite of a perfect storm,” Matthias Weber, chief underwriting officer at Zurich-based Swiss Re, said, referring to the industry in general. “Everybody enjoyed reserve releases. However, if we adjust results for this and the ‘good luck’ due to the absence of large natural catastrophe losses, they are not that fantastic anymore.”

The combined ratio for property and casualty at Swiss Re AG, the world’s biggest reinsurer, worsened to 101 per cent in the second quarter from 92.9 per cent a year ago after catastrophe claims including earthquakes in Japan and wildfires in Canada. It would have been 5.5 percentage points higher without prior-year releases. Munich Re’s ratio in the same segment rose to 99.8 per cent from 93.3 per cent, even after releases improved the measure by 5.1 percentage points.

“If you look at the combined ratios before reserve releases, then you can clearly see an impact every year from the softening in the market,” Ludger Arnoldussen, a Munich Re management board member, said at the roundtable organised by Bloomberg News. “The underlying deterioration is there.”

The ratios are rising despite losses from natural disasters for the first six months of the year only being in line with the 10-year average, according to Munich Re estimates. Reinsurers are also running out of claims reserves that they can release as profits fall, Allianz Re chief executive officer Amer Ahmed said in February.

Competition is rising as central banks’ quantitative easing programmes pushed down yields for traditional investments, luring new participants to the market. Investors from hedge funds to pension managers hope to boost their returns by putting up capital to back risks through insurance-linked securities such as catastrophe bonds.

Alternative capacity from capital-market offerings such as catastrophe bonds and collateralised reinsurance rose to a record $73 billion in the first quarter, according to Aon Plc. Reinsurers had a further $580 billion available to back risk in the first quarter, matching the high reached a year earlier, the broker said.

That meant continued price falls when contracts were renewed in July, albeit at a slower pace than previously, both Munich Re and Swiss Re said when reporting figures for the second quarter. Munich Re saw a 0.4 per cent decline in prices in July compared with a 2.1 per cent drop a year ago, the firm said.

“We clearly have a situation of oversupply,” said Juan Beer, who buys coverage as head of group reinsurance at Zurich Insurance Group AG. “It takes a lot to reverse the cycle such as a financial-market shock or a massive natural catastrophe.”

Markets are already punishing the industry for the rising ratios and falling profits. Swiss Re, Munich Re and Hannover Re, three of the world’s four biggest reinsurers, reported a decline in quarterly earnings in the second quarter. Munich Re shares have fallen 13 per cent this year, with Swiss Re down 17 per cent and Hannover Re losing 14 per cent.

“On the surface, reinsurer results may still look good, but if you look at the underlying health they don’t,” Ahmed at Allianz Re, the reinsurance arm of Europe’s biggest insurer Allianz SE, said on Monday. “The benign catastrophe environment of the last few years led to good results.”

The favourable level of claims in recent years may be threatened by the US hurricane season. The Atlantic basin will see the most named storms since the 2012 season, the year Sandy caused as much as $50 billion in property damage in the US, with as many as four of those strengthening into major hurricanes by November 30, the National Oceanic and Atmospheric Administration said on August 11.

“Analysts and investors absolutely know that good luck will not be the new normal” when it comes to claims, Swiss Re’s Weber said. “It is just a matter of time until the big hammer comes down and then, resilience, size and capital on the balance sheet will make the difference.”