Reinsurers reassured as mortgage market passes COVID-19 resilience test


Reinsurers reassured as mortgage market passes COVID-19 resilience test

Joe Monaghan, executive managing director of Aon Reinsurance Solutions

The mortgage credit risk market has so far weathered the challenges of COVID-19 well, largely due to changes made in the aftermath of the last financial crisis in 2008. This has reassured reinsurers to this sector and could ultimately encourage more to get involved in the sector in the future.

That is the view of Joe Monaghan, chief executive officer of Aon’s Public Sector Partnership, who told Intelligent Insurer that, despite the challenges of COVID-19, the US housing markets are holding up well.

“What we are seeing is totally different from the financial crisis, and there are several reasons for that,” Monaghan said.

Freddie Mac and Fannie Mae, the US government-sponsored enterprises (GSEs) that provide liquidity to the US mortgage markets by buying mortgages from lenders, first transferred risks into the reinsurance sector in 2013.

Between them, they have now transferred more than $30 billion of limit to more than 45 different re/insurance entities which play in this space.

Monaghan said the first difference is that underwriting standards and controls are much more robust than those that existed prior to 2008, when the housing market crashed.

“Those measures have borne fruit and the mortgage markets are more resilient as a result,” he said.

“This is very important for reinsurers to understand. We are going through a recession, but the housing market is holding up well. The fundamentals are very different.

“There was a misalignment of interests in the risk chain before but that has been solved and there is better control over underwriting standards.

“There is also a significant and multi-year under-supply of housing now and COVID-19 has actually increased demand for single family houses as buyers are seeking more space with many people working from home.”

Aon, Mortgage credit risk market, COVID-19, Insurance, Reinsurance, Joe Monaghan, North America

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