Reinsurance across the globe struggled with earnings in the second quarter of the year, with two leading rating agencies warning there could be more challenges to come as the true impact of COVID-19 is felt.
Moody’s has issued its review in the first half of the year while Fitch has warned Asian re/insurers are busy looking at the adequacy of their current programmes.
During the second half of 2020, global reinsurers reported anaemic earnings amid the increase in coronavirus claims, albeit investment returns rebounded, according to Moody’s. One bright spot was strong pricing momentum and capital levels remains healthy, but a high degree of uncertainty remains.
“Global reinsurers reported a broad-based improvement in pricing, extending beyond previously loss-making lines of business,” according to Moody’s Vice President Christian Badorff. “Price increases in recent policy renewals are in the mid-to-high single digits on average, and significantly higher natural catastrophe-exposed business in the US and Asia-Pacific.”
It added pricing increases will be beneficial, however; the significant drop in interest rates has substantially affected investment yields during the first half of the year. The lower yields will pressure margins, particularly on longer-tail casualty lines. Moreover, the firm added reinsurers will need to contend with an active hurricane season, among other natural disaster and man-made losses.
During the second quarter, pandemic claims rose significantly for some reinsurers compared to the first quarter of the year. In non-life, there was a significant variation between companies owing to differences in how the assessment of claims exposures has evolved since the end of the first quarter. Large, multi-line reinsurance groups were typically hit the hardest while travel insurance and event cancellation claims rose substantially over the six months, and business interruption claims and litigation started to arrive in the second quarter.
Reinsurers with life operations reported emerging claims in the second quarter and Moody’s expects these to rise further over the remainder of the year.
Fitch has focused on Asia for a new report which found insurers and reinsurers in the region are likely to put renewed emphasis on ensuring the adequacy and appropriateness of their existing re/insurance protection, following significant catastrophe losses in 2019 and the first half of 2020 and in expectation of the tougher times following the coronavirus pandemic, Fitch Ratings says in a new report.
“Asian reinsurers’ losses related to the coronavirus pandemic appear to be on a manageable scale thus far due to tight measures to curb the spread of the virus,” added Fitch. “In addition, they entered the crisis well-capitalised. Asian reinsurers are refocusing on capital management to enhance their risk-adjusted capitalisation to build buffers against a potential increase in claims and investment losses. However, business growth will slow as the economy and direct insurers’ premium growth decelerate.”
The report added some Asian re/insurers have also taken up catastrophe reinsurance/retrocession cover in excess of the minimum regulatory requirements to improve risk mitigation.
“Ongoing economic uncertainty and the risk of market turmoil are among the challenges that may curb M&A activities,” it added. “We believe that reinsurers will find it more difficult to position themselves strategically and competitively to withstand the uncertainties in the business environment triggered by the coronavirus outbreak.”
The report highlighted regulators in several Asian markets have amended or are in the process of amending re/insurance related regulations to reflect market changes.
“These changes will push reinsurers to develop the necessary internal capabilities and risk-management frameworks to manage the impacts,” said Fitch.