Global reinsurers expected to brave COVID-19 volatility

Despite the volatility and uncertainty created by the COVID-19 pandemic, global reinsurers continue to be well-capitalised and the industry remains resilient given its long history of innovative and prudent risk management.

Therefore, credit ratings agency AM Best is maintaining its market segment outlook at stable for the global reinsurance industry according to its recently published market segment report.

The agency expects any covered losses to be manageable and that relevant policy exclusions will hold up for reinsurers. “Our outlook for the global reinsurance industry remains at stable owing to a favourable pricing environment for non-life reinsurance and a stable global market environment for life reinsurance,” said the agency in its report.

Although the operating and competitive landscapes of the two major reinsurance business segments are distinct, the resulting diversification is said to benefit the global reinsurance segment from an overall earnings perspective.

According to the report, other factors considered in the stable market segment outlook include:

• Robust risk-adjusted capitalisation with significant excess capital in recent years which has positioned reinsurers to absorb COVID-19-related underwriting losses and investment volatility
• The possibility that more-attractive opportunities emerge as the economy stabilises once the COVID-19 crisis abates and constrains a new flow of third-party capital
• Greater discipline to generate underwriting profit commensurate with total return expectations owing to pressure on interest rates, increased stock market volatility and global economic disruption
• The potential for an increase in demand from insurers that may have a constrained financial position as a result of the capital market volatility caused by COVID-19
• Strongly-capitalised life reinsurers with advanced modelling capabilities to handle a one-in-200 year mortality event

A stable market segment outlook indicates that AM Best expects market trends to have a neutral influence on companies operating in that market segment over the next 12 months.

The agency’s market segment report examines the impact of current trends on companies operating in particular segments of the insurance industry over the next 12 months.

It typically considers factors such as current and forecast economic conditions; regulatory environment and potential changes; emerging product developments and competitive issues that could impact the success of these companies.

Source: Asia Insurance Review