Global reinsurers resilient amid COVID-19 turmoil, losses to be manageable

Global reinsurers are well capitalised and resilient to withstand the COVID-19 setback, owing to their innovative and prudent risk management history, says AM Best.

The agency expects any covered losses from the pandemic to be entirely "manageable" and believes that relevant policy exclusions will hold up.

Adverse impacts from the pandemic both underwriting and investment-related may act to restrain capacity, which will further support positive pricing trends that were already in motion.

Although there will be short-term disruptions, reinsurers, brokers and most cedants have the necessary technology infrastructure to maintain and continue their business operations.

AM Best is largely of the view that the global reinsurance segment is well positioned to withstand this temporary setback. It noted that life and non-life reinsurance carriers will be affected differently - both from an underwriting risk perspective and an investment risk perspective.

For non-life reinsurers the duration of the pandemic will dictate the degree of losses, but most companies will be well-positioned to take advantage of the potential rebound in business activity once the social and economic impacts of the pandemic subside.

For life reinsurers that traditionally avoid the investment risks and are therefore less exposed to financial market risk, a factor that may alleviate the financial impact is a disproportionate number of fatalities among the elderly, given that mortality insurance products tend to be focused on working-age groups.

Morbidity risk is likely to have a much smaller impact on reinsurers than on primary writers, given the relatively low reinsurance exposure to the health segment, high attachment points, and business models focused on cash flow management and administration services.

Additionally, AM Best expects pricing during these upcoming renewals could be influenced by capacity tightening from third-party capital, as investors are pressured by collateral and margin requirements owing to the volatile markets.