Global life and non-life insurance and reinsurance COVID-19 claims are approaching $50 billion, which has had a significant burden on reinsurers, according to Mike Van Slooten, head of Business Intelligence for Aon Reinsurance Solutions.
For example, the four major European reinsurers – Munich Re, Swiss Re, Hannover Re and SCOR – have had aggregate COVID losses of $13 billion, he said during a renewal season briefing held this week by Aon. “That’s a very considerable burden, but I think it does clearly evidence … that reinsurance has a significant part to play as a stabilizing mechanism against systemic risk.”
While the impact on reinsurers’ results from COVID has actually diminished significantly during 2021, Van Slooten noted that excess mortality continues to generate losses on the life side.
“In addition, there’s still material uncertainty around the ultimate extent and distribution of business interruption losses, and discussions around potential reinsurance recoveries, I think, will be a part of some renewals,” he said.
During his discussion of what reinsurance buyers can expect during the upcoming January renewals, Van Slooten said, he had both good and bad news.
“The good news is that reinsurers genuinely performed pretty well in the first half of 2021, and capital has continued to build from what was already a pretty strong position.”
For example, the 22 reinsurers that comprise Aon’s Reinsurance Aggregate (ARA) showed a much improved combined ratio of 93.9% for the first half of 2021, while global reinsurer capital rose $10 billion to $660 billion during the same period. (Combined ratios below 100% indicate underwriting profits).
During the first half, natural catastrophe claims – mostly from the Texas winter storms – added 5.1% to the overall combined ratio, he said, noting that global insured losses during the first half of 2021 were slightly above the 10-year average.
But overall, however, the first half showed a fairly strong performance for reinsurers. “Most reinsurers that we track posted strong growth in gross written premiums in the first half of the year, mainly reflecting the impact of renewal rate increases as the year has progressed,” he said. “In addition, reinsurance demand has generally held up pretty well.”
Further, he said, the full benefit of past rate increases is beginning to earn through the results, “really for the first time.”
“I think that impact [of rate hikes] was masked last year by the impact of the pandemic,” Van Slooten said.
But then he turned to the bad news for reinsurance buyers — the high level of natural catastrophe loss activity that has occurred early in the second half, which is “already threatening to derail full-year earnings.”
Only halfway through the 2021 Atlantic hurricane season, which is expected to be active, there have already been five hurricanes and 12 named storms, Van Slooten said during Aon’s Sept. 7 briefing for clients and journalists.
Over the last two months, the two events of note are the European floods in mid-July and Hurricane Ida at the end of August, which together can be expected to cost conservatively at least $30 billion, he said. Data show that “we’re already close to the 10-year annual average with four months of the year left to run.”
He said the phrase “plentiful capacity, disciplined deployment” is a good description of what reinsurance buyers can expect during the Jan. 1 renewals.
“There’s no doubt the impact of climate change and the recalibration of secondary perils is going to remain a hot topic in the lead up to the renewals,” Van Slooten said. “Further attempts to tighten contract language can be expected amid concerns around systemic risk.”
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