COVID-19 has had a significant effect on reinsurance markets, with leading reinsurers suffering significant losses (see following table).
While Aon reported that global reinsurance capital fell by 6% over the first three months of the year, a partial recovery in financial markets and an influx of new capital has improved the picture recently. According to Fitch, over US$5 billion of new equity funds have been raised by reinsurers such as RenRe, Hiscox, Beazley, and Lancashire.
Willis Re reported double-digit risk-adjusted reinsurance price increases for loss affected catastrophe treaties, which ranged from +10% to +20% for Australian programs.
In addition, discussions with reinsurers and brokers indicate that:
- There were significant market headwinds before the current pandemic, including the bushfire and storm losses from last summer.
- Despite the drop in capital, capacity was available during the July renewal period and generally insurers were able to secure needed limits.
- Rating agencies have taken action on some reinsurers, which can lead to some no longer meeting risk appetite standards and thus limiting the pool of reinsurers on large panels.
- Reinsurers have been reviewing exclusions and tightening language in respect of pandemics.
Another major area impacted in the renewals season has been financial and professional lines with significant increases in premiums for Directors’ and Officers’ (D&O) policies.
The D&O market has been adversely impacted in recent years, driven by the increased numbers of class actions. Insurers are wary that the economic downturn due to COVID-19 has the potential to exacerbate the numbers of class actions, and consequently claims. There have also been reductions in the capacity available and changes to coverage terms on offer as the market tries to navigate through the uncertainty.
In past periods of financial turmoil, such as the 2008 financial crisis, the reinsurance markets have been able to attract capital driven towards higher yields with noneconomic risk diversification. There is already talk of a “Class of 2020” according to a recent report by AM Best.
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