Those who expect the reinsurance industry to “shrug off” this year’s heavy catastrophe losses as new capital pours in from the sidelines have got it wrong.

So says Bronek Masojada, chief executive officer of Bermudian-based Hiscox, who said that many companies’ balance sheets would be hit and that insurance-linked securities investors who suffered losses may not be as keen to reinvest as many were expecting.

And Hiscox was already seeing rate increases of between 10 per cent and 50 per cent “and sometimes more” in loss-affected US lines, he added.

“Some believe our industry will shrug off the heavy cat losses, and that new capital will flood in,” Mr Masojada said in a comment piece on Hiscox’s website. “They’re wrong, which is why prices are already rising.”

He said he disagreed with those who believed there was a “wall of capital” waiting to rush in, that the estimated $80 billion to $120 billion in losses would merely be “a knock to the industry’s earnings”, and that there would be no impact on pricing.

“I believe these events will hit many companies’ balance sheets and that only a trickle of alternative capital will come in,” Mr Masojada said.

Hiscox has tracked announcements by other companies, with catastrophe losses tallying $37 billion so far.

“These exclude the ILS funds whose losses are estimated to be a further $10 billion,” Mr Masojada said. “This takes us quite a way towards an estimated industry loss of $100 billion.

“This would be quite a hit of at least 20 per cent to the circa $500 billion of insurance capital exposed to North America, and we know there will be volatility at a company level.”

Mr Masojada looked at 2016’s financial results to estimate how many companies were likely to have suffered capital erosion, rather than only a hit to earnings.

“Of the 34 companies we follow we estimate that around a third would have suffered capital losses,” Mr Masojada said.

“Some would have been small, but many would have had losses of $500 million or more. This is real money and will affect these companies’ leadership and underwriting approaches.”

More diversified players like Hiscox, Travelers and Chubb would take only an earnings hit, but after their substantial losses they would still “be looking for price rises and payback”, Mr Masojada said.

He added that ILS and catastrophe bond funds had lost around $10 billion from the hurricanes, according to industry estimates.

“In addition to these actual losses, ILS funds will have to collateralise reinsurance layers which might be ‘loss affected’, even if they have not yet suffered a loss,” Mr Masojada added.

“This collateralisation, known as side pocketing, could tie up as much as an additional $10 billion. So, in total, $20 billion of an estimated ILS market of $80 billion will not be available to support 2018 underwriting.

“This is a substantial amount of money to raise, and remember that a big chunk of it has to be here by 1 December so that it can be deployed to support 1 January underwriting.”

The impact of the losses on investors should not be underestimated, he added.

“If you bought shares in a company and then watched their value fall by 25 per cent, how would you feel about doubling up on your investment?” Mr Masojada said.

“I don’t believe fund managers who have just lost a lot of money on these hurricanes will double down that quickly.

“Some will replace what has been lost or side pocketed, but I do not see this happening immediately and newcomers will likely put small amounts to work first, and then increase their investment over the next two to three years.

“So I believe that we will see a trickle not a flood of new money into the industry.”

The forces of supply and demand will put upward pressure on pricing, he said.