SEPTEMBER 02, 2020 07:22 AM (EDT)
Best’s Market Segment Report: Global Reinsurers Maintain Equilibrium Through COVID-19 Turbulence
|Carlos Wong-Fupuy, FIA, FRM |
+1 908 439 2200, ext. 5344
+1 908 439 2200, ext. 5593
Director, Market Development
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Director, Public Relations
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FOR IMMEDIATE RELEASE
OLDWICK - SEPTEMBER 02, 2020 07:22 AM (EDT)
AM Best’s continued stable outlook on the global reinsurance industry is reflective of negative market forces, predominantly driven by the COVID-19 pandemic, social inflation and previous years’ property catastrophe events, being offset by hardening rates and a re-assessment of third-party capital investor appetite.
In its new Best’s Market Segment Report, “Global Reinsurers Maintain Equilibrium Through COVID-19 Turbulence,” AM Best notes that while the ultimate impact of the pandemic remains to be seen, some companies appear better positioned than others to adapt to these market conditions. Expectations vary greatly on both sides of the balance sheet, and depend largely on factors such as each company’s product mix— with event cancellation, non-U.S. business interruption, directors and officers, workers’ compensation and financial lines most likely to be affected—and differing levels of concentration in equity holdings and any extant relief from hedging strategies.
At the same time, the hardening pricing conditions are creating opportunity. Property catastrophe, specialty lines and some U.S. casualty lines have been showing much-needed improvement in pricing and coverage terms. The risk is that the positive market momentum turns out to be short-lived and excess capacity starts expanding again. For this reason, AM Best believes that the market hardening must be sustained for long enough to offset the impact of prior underwriting losses, as well as the uncertain impact of COVID-19, which likely is to have a long tail due to legal disputes. If reinsurers do not sustain stronger pricing, they risk losing investor confidence.
The global reinsurance composite has produced a five-year (2015-2019) average combined ratio of 99.6% and a return on equity of 5.7%. The report notes, however, that 3-4 percentage points of that combined ratio performance is attributable to favorable loss reserve development. This benefit continues to diminish, and without prompt, corrective action, will create a drag on earnings.
Companies’ individual abilities to take advantage of the hardening market conditions are likely to be influenced by a flight to quality. After three years of significant industry losses, those companies with a solid financial strength, robust reputation and market position, as well as stable, consistent and transparent results, should be best-positioned to optimize their underwriting risk portfolio and continue to attract and deploy capital. In the medium term, AM Best believes that the sector as a whole should be able to manage this challenging—and promising—market environment.
Other highlights from this year’s report include:
To access a copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=300732 .
A short video interview with AM Best Senior Director Carlos Wong-Fupuy and Associate Director Scott Mangan on the report also can be viewed at http://www.ambest.com/v.asp?v=ambglobalrereport920 .
AM Best also will host its annual reinsurance market briefing as a virtual event on Sunday, Sept. 13, 2020, from 10:15 a.m.–11:45 a.m. (CEST). To more information and to register, please visit http://www.ambest.com/conferences/rmbseptembre2020 . AM Best will hold a second virtual market briefing on Tuesday, Sept. 22. More information and registration can be found at http://www.ambest.com/conferences/rmbzurich2020 .
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.