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Aon: COVID-19 Improves Reinsurance Demand

Rising risk exposures and increasing risk awareness are translating into a greater need for reinsurance.
  • David Pilla
  • October 2020
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The COVID-19 pandemic, while an ongoing risk with unknown consequences for reinsurers, appears to be a boon for reinsurance demand, said experts with broker Aon.

COVID-19 hasn't slowed down interest in reinsurance mergers and acquisitions, said Andy Marcell, chief executive officer of Aon Reinsurance Solutions, noting the market is keeping its M&A pace by acquiring existing companies.

Private equity firms continue to show interest in reinsurers, Paul Schultz, CEO of Aon Securities, said in the briefing. “COVID-19 hasn't interrupted the M&A cycle and that's going to continue,” he said.

There is still a lot of capacity in the market and we see reinsurers that are talking about growth and have a lot of clients with additional need for reinsurance.

Michael Van Slooten
Aon


Mergers and acquisitions remain an attractive growth strategy for insurers in the first six months of 2020 despite the economic disruption of the COVID-19 pandemic as M&A deals were relatively steady compared with 2019, said law firm Clyde & Co.

Marcell noted “there is no doubt in minds of our clients and reinsurers” that COVID-19 is “an ongoing event” that is likely to increase demand for reinsurance.

At the beginning of 2020, before COVID-19 took hold, Aon was projecting a “modest tightening” of reinsurance capacity after catastrophe losses in 2017 and 2018, along with adverse development in 2019, Michael Van Slooten, head of business intelligence, Aon, said in the briefing.

As COVID-19 struck, it hit both sides of the balance sheet for reinsurers, with a focus on claims, but the asset side has been affected as well, said Van Slooten. He said the aggregate combined ratio for the Aon Reinsurance Composite of 23 reinsurers was 104.1 for the first six months of 2020, including nearly 10 points related to losses and reserves established for COVID-19 on the property/casualty side.

Van Slooten said there was also nearly $1 billion of reserves established in life reinsurance for COVID-19. About 80% of anticipated COVID-19 losses are likely incurred but not reported, said Van Slooten.

“We think there is probably more to come,” he said. “There is still uncertainty around the ultimate extent and distribution of those losses across the industry” but “the ultimate burden is likely to be manageable” for the industry.

“Either there's a lot more to come or perhaps the ultimate market loss isn't going to be quite as big as people were expecting,” Van Slooten said.


David Pilla is news editor, BestWeek. He can be reached at david.pilla@ambest.com.


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