Reinsurance renewals realities during a pandemic

By Amir Sadiq

While insurers were able to secure sufficient reinsurance capacity at the 1 June and 1 July renewals supported by adequate reinsurance capital, the shadow of unrealised COVID-19 losses continues to loom over the industry, with the global reinsurance market exercising more caution in these unprecedented times.

The recovery in investment markets, allied with investors’ appetite to support additional capital and debt offerings and reinsurers’ own prudent risk and cost management, has seen capital levels return to being only 5% lower than the end of December 2019. This compares to a 30% reduction at the end of March 2020, according to the latest 1st View renewals report from Willis Re.

COVID-19 losses announced to date stand at only $7bn compared to top-down market insured loss estimates of $30bn to $130bn, however, and may take several years to settle which will spread out reserving over many quarters.

“COVID-19 exclusionary language is now widespread across many lines, either in original policy wordings or in treaty contracts, and was a key element in obtaining reinsurers support,” said Willis Re global CEO James Kent in the report.

He added that similar to price changes, the exclusions were not managed in a ‘one size fits all’ approach with a bespoke methodology client by client.

Meanwhile, the pandemic has driven a second realisation: The impacts of a pandemic loss on the asset and liability sides of the market’s balance sheet are highly correlated. As a result, investors have remained cautious and selective as they continue to withdraw capital from some ILS funds whilst favouring better performing funds and rated reinsurers.

“The global reinsurance market was not capital-constrained during the recent renewals, but has shown a greater level of prudence with an increased focus on underwriting profitability,” he said.

“More persistent hardening is evident largely across the board, but reinsurers continue to exercise clear differentiation between clients, lines of business, and territories. The value of sustained relationships has once again been proved.”

Asia Insurance Review

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