Reinsurers have reported “lackluster” results for 2020, according to analysts at Moody’s, who argue that the catastrophe and COVID-19 losses incurred last year overshadowed pricing gains.
For the full year, Moody’s noted that reinsurers’ combined ratios were generally in the 102% to 110% range, even as investment gains helped to lift profits for some firms.
Catastrophe losses have featured prominently in reinsurers’ earnings reports in recent years, with three of the five highest insured catastrophe loss years on record occurring during the past four years.
For 2020, Swiss Re estimated that insured catastrophe losses were approximately $83 billion, the fifth highest level on record.
Catastrophe event frequency was high, with a record 30 named storms in the Atlantic Ocean in 2020, of which a record 12 storms made landfall in the US (six as hurricanes).
And incorporating losses from coronavirus-related claims pushed insured catastrophe plus coronavirus claims well above $100 billion for the year.
However, Moody’s did acknowledge that, without the impact of pandemic claims, almost all the firms it covers would have reported an underwriting profit in 2020.
While most reinsurance treaties have now renewed with exclusions for viruses and communicable diseases, analysts believe it will take an extended period of time for litigation related to prior coverages to be resolved.
Additionally, court judgments in the UK and Europe in favour of policyholders suggest there is still significant uncertainty regarding the full extent of losses from the ongoing pandemic.
Furthermore, rate movements for property cat at the January 1 renewals were not as strong as initially anticipated given that some cedants retained more risk, new capital entering the sector, and the release of some trapped capital in the alternative market.
Beyond property cat, strong pricing gains in casualty and specialty reinsurance lines were noted, with continued improvements in terms and conditions.
Moody’s also expects strong pricing in primary commercial and excess and surplus lines to enhance profitability on quota-share coverages and for reinsurers with sizable primary insurance operations.
“Given the continued uncertainties related to the coronavirus, low interest rates, the impact of social inflation on casualty reserves and the high level of catastrophe losses over the past several years, we think reinsurance pricing momentum should continue through 2021 and into the January 2022 renewals,” the rating agency concluded.
