In 2019, rating agency AM Best noted an overall improvement in non-life market conditions, meaning that they were able to keep their reinsurance outlook as stable in 2020, even throughout the COVID-19 pandemic.
Analysts within the firm felt that reinsurers in the non-life segment were also gaining more favourable momentum even in the COVID-19 environment, along with persistent competitive market conditions.
In a recent webinar on the global reinsurance market, Carlos Wong-Fupuy, Senior Director at AM Best, explained: “We are keeping the outlook on the global reinsurance market as stable, this doesn’t mean that nothing has changed during the last year, on the contrary.
Wong-Fupuy then went on to explain the logic behind keeping their outlook as stable: “The whole point was we were seeing things start to come in at a lower level. So, the expectations for return equity were definitely lower than historical trends would suggest.
“Now, we’ve had three continuous years coming to the fourth year of increase claims activity. There have been another number of issues as well, so we are not talking about just natural catastrophes, hurricanes, Japanese typhoons, wildfires, but we’ve seen as well some change in activity from third party capital.”
The headwinds for the Global Market Outlook were further explained in the webinar.
There is an uncertainty of COVID-19 related losses, meaning that it’s hard to predict how much the losses will result in. There is also a low yield in investment conditions and capital markets volatility.
“The top capital, the ability of entering and exiting the market swiftly is definitely put into question. There are some concerns about the robustness of modelling and full pricing for investment purposes as well,” said Wong-Fupuy.
Adding: “There have been complications with the COVID-19 crisis, but I think that this has become a catalyst for some of the strengths. So, definitely, there is increase of expectation in improving pricing of terms and conditions but on the other hand we have the uncertainty of the alternate claims that from COVID-19 that we see the factors really play in opposite directions and despite the stable outcome we have thrown into the market.
“Now not all companies are going to respond in the same way, I believe some of them are in a much better position than others who responded to the challenges.”
However, Scott Mangan, Associate Director at AM Best, explained that Wong-Fubuy isn’t specifically focusing on a ratings outlook: “It’s probably good to be clear that our outlook is a market outlook and not necessarily a ratings outlook. While the two are definitely related to market conditions, they will help some companies somewhat more than others.”
He continued: “If there’s generally a lag in terms of when we see market conditions translating into rating actions, both positively and negatively, then, as Carlos outlined really well that reinsurers have been dealing with challenging market conditions over the past five years.
“It’s been highly competitive, we’ve seen a lot of pressure, in particular on performance trends and these issues, whether they are social or reserve issues, take a little while to flush them off of balance sheets and translate into rating actions.”